Stocks Rebound Again, Posting Record Highs; Yields Ease

U.S. stocks resumed their march through the record books Wednesday as bond yields declined, sending the Dow Jones industrial average ever closer to the 6,000 mark.

The Dow jumped 41.74 points to a record 5,778.00, beating the previous high of 5,748.82 set Monday. Wednesday’s close was the 21st record closing high for the blue-chip index so far this year.

The broad market also advanced, but the Dow’s percentage gain was greater than those of small-stock indexes--continuing the trend of recent days, as blue-chip shares have regained the leadership position from smaller issues, which led the market in March and April.

“The stock market has broken to the upside in a major way,” said Scott Bleier, chief investment strategist at Prime Charter Ltd. “The Dow is playing catch-up to the Nasdaq” market of mostly smaller stocks, he said.

The Nasdaq composite index rose 2.96 points to 1,247.38, but that was short of Monday’s record of 1,248.11.

Rising stocks outnumbered losers by 1,309 to 1,037 on the New York Stock Exchange and by a slimmer 1,959 to 1,901 on Nasdaq.

A late rally in bonds helped power stocks Wednesday. The yield on the benchmark 30-year Treasury bond fell from 6.85% Tuesday to 6.81%, the lowest since April 26.

Traders said some fund managers were buying bonds late Wednesday in a gamble that the U.S. economy will slow in coming months, allowing yields to decline.

After having cut short-term rates three times since last July to stimulate economic growth, the Federal Reserve Board decided on Tuesday to hold rates steady. There had been worries in recent weeks that the Fed might raise rates, amid signs of surprising economic strength and hints of higher inflation.

But “if inflation is not going to be picking up, bonds at these levels look pretty attractive,” said Richard Schlanger, who helps oversee about $1.5 billion of bonds at Pioneering Management in Boston.

The stock market, meanwhile, seems content with expectations for decent economic growth ahead. “I feel pretty good about the market,” said Peter Anderson, chief investment officer at IDS Advisory Group in Minneapolis. “I believe the economy is in really good shape.”

Part of the Wednesday’s rebound was propelled by short-sellers--investors who had speculated that the market would weaken. When stocks advanced, these investors scrambled to buy in order to minimize their losses.

“Everybody’s instinctively nervous that we’ve had a big run-up,” said Hugh Johnson, chief investment officer at First Albany Corp. “They’re worried they’ll be left out if we have another big move up.”

But, he added, “the market’s likely to be trendless until we get another set of economic numbers” that may direct the Fed’s next move on interest rates. The next important report on the economy will be the May employment data, scheduled for release June 7.

On Wednesday, interest-sensitive stocks were big gainers amid the newfound confidence that rates would hold steady or fall.

The Dow Jones utility average rose 2.93 points, or 1.4%, to 215.41. Banking, brokerage and insurance stocks also moved aggressively higher.

Meanwhile, a resurgence in crude oil prices pushed oil stock prices higher. Exxon rose 1 5/8 to 87 3/4, Mobil jumped 1 3/8 to 115 3/4 and Unocal gained 7/8 to 32 7/8.

At the New York Mercantile Exchange, July crude oil futures rose 77 cents to $21.40 a barrel.

Despite Iraq’s agreement with the United Nations to sell oil in the world market again, “Demand is still strong worldwide and underestimated,” said McCarthy Crisanti Maffei analyst Jack McIntyre.

Some traders suggested the rally might also have been fueled by nervousness over Iran’s having war games this week.

Among Wednesday’s highlights:

* Among financial issues rising, Banc One gained 1 5/8 to 37, Merrill Lynch soared 2 3/8 to 67 and Aetna rose 1 13/32 to 74 5/8.

Also, Bankers Trust rose 3 5/8 to 77 3/8 on news that Wolfensohn, a firm that has advised clients on many of the biggest mergers in recent years, agreed to merge with Bankers Trust. It said Paul Volcker, the former Fed chairman now chairman of Wolfensohn, will join the Bankers board of directors.

* Saks Fifth Avenue, the posh New York City-based department store chain, capitalized on investors’ new romance with consumer stocks with an initial public offering of 16 million common shares at 25 each. The stock closed at 34 5/8, which one analyst estimated at more than 60 times earnings, considered extraordinarily high.

* Tech issues were mixed. Computer Associates slumped 5 1/8 to 76. The business software developer reported earnings that topped analysts’ estimates, but it warned of tough first-quarter comparisons.

Another tech firm, Watkins-Johnson, lost 5 1/8 to 29 5/8 after warning that its second-quarter earnings would fall short of expectations.

* Stock in PC storage systems company Iomega jumped 10 5/8 to 54 and topped the Nasdaq actives list. The company said Acer Group plans to include Iomega’s Zip Drive as a storage device in its new PC line, AcerBasic.

* Merrill Lynch downgraded its long-term rating on semiconductor maker Micron Technology. On Monday, the Semiconductor Industry Assn. revised downward its global industry growth rate forecasts for 1996 and ’97.

Micron lost 1 1/4 to 31 1/8, Texas Instruments fell 5/8 to 52 5/8 and Intel slipped 3/8 to 69 7/8.