Stocks Rebound Again, Posting Record Highs; Yields Ease

U.S. stocks resumed their march through the record books as oil shares advanced and interest rates fell, raising hopes that corporate earnings may be better than had been expected in coming months.

“The economy isn’t that weak,” said Mary Sunderland, portfolio manager at Skandia Investment Management. “Things will pick up in the second half. This low-inflation environment and slow growth is going to be good for stocks.”

“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.”

The Dow Jones industrial average ended with a gain of 41.74 points at 5,778.00, beating the high of 5,748.82 set Monday. Wednesday’s close is the 21st record closing high for the Dow so far this year.

The technology-stock laden Nasdaq composite index, which set its 27th high for the year on Monday, ended with a gain, but it fell short of a record because semiconductor shares came under selling pressure.

In the broader market, advancing issues led decliners 1,292 to 1,006 on active trading of 420 million shares on the New York Stock Exchange. The Standard & Poor’s composite index of 500 stocks, the NYSE composite and the American Stock Exchange indexes all set new highs.

The yield on the 30-year Treasury bond fell to 6.81% from 6.85% late Tuesday.

“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 Federal Reserve Board’s next move on interest rates. The next important report on the economy will be the May employment data, scheduled for release June 7.

After having cut short-term rates three times since last July to stimulate economic growth, the Fed decided in March and again on Tuesday to hold rates steady as signs of a moderately rebounding economy and higher inflation emerged.

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 1.38%, to 215.41. Banking, brokerage and insurance stocks moved aggressively higher.

A resurgence in oil prices also pushed oil stock prices higher. Philips Petroleum rose 1/4 to 41 7/8, Mobil added 1 3/8 to 115 3/4 and Royal Dutch Petroleum advanced 2 1/4 to 152 1/8. At the New York Mercantile Exchange, July crude oil rose 77 cents to $21.40 a barrel after setting a contract high of $21.67.

“Demand is still strong worldwide and underestimated; U.S. crude stocks fell to new 20-year lows,” 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:

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

* Technology company Watkins-Johnson lost 5 1/8 to 29 5/8 after warning that its second-quarter earnings would fall short of expectations.

* Franklin Quest fell 4 3/8 to 22 3/8. Brokerage houses Merrill Lynch and Smith Barney downgraded the stock.

* 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.

* 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.

* Telxon tumbled 6 7/8 to 19 1/2. It reported a 99% surge in quarterly earnings from a year ago that was swollen by nonrecurring gains.

* 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.

* 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.

Overseas, Tokyo’s Nikkei-225 stock average fell 0.6%, Frankfurt’s DAX index fell 0.5%, and London’s FTSE-100 fell 0.7%.