Strong dollar, nice bonuses lift markets

NEW YORK (AP) — Stocks posted strong gains Tuesday, again pushing the Nasdaq and Standard & Poor’s 500 indexes to record highs, as investors ignored a slumping dollar and bonds and warnings about weak profits from a handful of companies.
Analysts saw signs of a traditional January rally, in which investors use yearend bonuses and other cash reserves to embark on new stock strategies.
The Dow Jones industrial average rose 126.92 to 9,311.19, missing a new record by 36 points. The Nasdaq composite rose to record territory for the third straight session and the seventh in 10 sessions, to close at 2,251.27, up 43.22. The S&P 500 rose 16.68 to 1,244.78, topping its previous closing record of 1,241.81 on Dec. 29.
The dollar’s decline against the Japanese yen put pressure on the price of U.S. bonds, but not stocks.
Peter Canelo, market strategist at Morgan Stanley, Dean Witter, said the weakness of the dollar against the yen wasn’t that important for the stock market because the dollar rose against the new euro, which began trading on Monday.
While Japanese investors are big buyers of U.S. bonds, they’re not big players in the U.S. stock market, Canelo explained. The reverse is true for European investors, he said.
“If the dollar is off against the yen, then you can look for U.S. bonds to be lower, but if it’s lower against European currencies, then you can expect U.S. stocks to be down.”
A weak bond market causes interest rates to rise, which is sometimes a concern to stock investors fearful of an erosion in corporate profits. Tuesday, however, that wasn’t a major concern because stock investors were more interested in putting yearend cash bonuses to work in the stock market, Canelo said. “The fact that they keep buying equities is a vote of confidence in the American economy.”
Twenty-four of the 30 Dow Jones industrials components were higher at the close, including such diverse names as IBM, Alcoa, Procter & Gamble and United Technologies. Even the shares of companies that depend on commodities prices, which currently are depressed, were higher, such as International Paper.
“We expect that the Asian economies will bottom out toward the middle of the year,” Canelo said. “That means that commodity prices will stabilize in the first half” of next year.
Telecommunications stocks rose on merger talk. AirTouch Communications rose 9 1/4 to 77 1/2 when Britain’s Vodafone PLC made a counteroffer to buy the company, threatening to derail a $45 billion bid from Bell Atlantic Corp. Bell Atlantic.
Technology stocks rose despite some profit warnings. shares closed up 6 3/16 and Microsoft moved up 5 1/2.