Stocks Cruise to New Highs as Yields Plunge

Blue-chip stocks led a broad market advance Thursday as bond yields tumbled on weaker-than-expected June employment data.

In a shortened session ahead of the holiday weekend, the Dow Jones industrials rocketed 100.43 points, or 1.3%, to a record 7,895.81, barreling past the previous peak of 7,796.51 reached June 20.

Broader stock measures also hit new highs after the government said the nation’s unemployment rate rose in June and wage pressures were mild--confirming that the economy has slowed and thus probably eliminating the need for the Federal Reserve Board to tighten credit any time soon.

The Fed met Tuesday and Wednesday and, as expected, did not alter its key short-term interest rate, now at 5.5%.

If anything, analysts believe the more likely path for rates in the near term is down, as some investors rush to lock in yields.

In the bond market Thursday, which, like the stock market, closed at 10 a.m. PDT, the yield on the bellwether 30-year Treasury bond sank to 6.62% from 6.71% on Wednesday. The yield now is the lowest since Feb. 19, and could soon test the 1997 low of 6.52% reached Feb. 14, traders said.

“The economy is not super-strong and there is no inflation,” said Denny Niedringhaus, who manages $300 million in bonds at Southwest Bank of St. Louis. “People are saying bonds are too high in yield.” He said yields could fall to 6.50% “fairly quickly.”

For stocks, bonds’ rally provided just another excuse to do what everyone seems to want to do anyway: buy more, especially giant, household-name issues.

And coming ahead of second-quarter earnings reports, which will begin flowing out next week, a bond rally could soften the impact if earnings are weaker than expected because of the economy’s modest slowdown, analysts noted.

The broad market rallied with the Dow on Thursday, but buying was concentrated in blue chips. Winners topped losers by 20 to 8 on the New York Stock Exchange but by just 21 to 16 on Nasdaq. The Nasdaq composite rose 12.00 points to a record 1,467.61, but its gain was 0.8%, versus the Dow’s 1.3%.

The Dow index gained 2.7% for the week and now is up 22.5% year-to-date, having broken through 14 “century” marks, or 100-point increments; it began the year at 6,448.27.

The Nasdaq composite was up 2% for the week and is up 13.7% year-to-date, and the Russell 2,000 index of smaller stocks rose 0.9% for the week and is up 9.3% this year.

Analysts detected a seasonal note in Thursday’s performance, pointing out that market action in the days leading up to and following the Independence Day holiday has often been volatile.

A year ago, a stunningly strong employment report on the day after the holiday initiated a monthlong stock market pullback.

Among Thursday’s highlights:

* Financial stocks continued to lead the market higher, as interest rates fell. NationsBank rose 1 7/8 to 68, Bankers Trust gained 2 1/4 to 92 1/2, Fannie Mae was up 1 1/4 to 46 7/8 and Aetna jumped 2 to 105 3/8.

Also, the Dow index benefited from a surge in American Express, which rocketed 6 7/8 to 83 on renewed takeover rumors.

* Other blue chips up strongly included GE, up 1 13/16 to 69 3/8; IBM, up 1 6/16 to 94 13/16; and Caterpillar, up 1 13/16 to 109 1/16.

* Consumer stocks rallying sharply included Gillette, up 2 1/16 to 98 3/16; Pfizer, up 2 3/4 to 63 3/4; and Philip Morris, up 1 3/8 to 45 3/8.

* Defense stocks rose on the heels of the Lockheed Martin/Northrop Grumman takeover announcement, but most of the gains were modest. (Story, D5.)

In foreign trading, stocks hit new highs in Mexico City, Toronto, Frankfurt, London and Sao Paulo, Brazil, among other markets. The Bangkok market continued to surge in the wake of the government’s decision to devalue the currency; the key index jumped 8.7%.