International Business Machines led Wall Street to a small gain Thursday as the computer maker rode the coattails of a weak dollar to a stronger-than-expected earnings report.
While the Clinton administration has decided it no longer wants a weakening dollar, IBM profited handsomely from the decline of the greenback this year. With IBM equipment cheaper due to stronger foreign currencies, buyers abounded.
IBM wound up earning $1.14 a share in the second quarter, far above Wall Street’s expectations of up to 73 cents a share. Its stock rose $4.37 to $60.25 after being up nearly $6 during the day.
In a twist, the dollar staged a strong rally after U.S. and German officials made supportive remarks. Analysts said they expect the decline to resume unless the governments intervene and U.S. interest rates rise.
The greenback jumped 1.1 percent against the German mark, closing at 1.5925, one of its biggest one-day gains in months. It also rose against the yen, closing at 99.20 yen, up from 98.65 Wednesday.
The Dow Jones industrial average, of which IBM is a component, rose 5.18 points to 3732.45 on Big Board volume of 293 million shares. The Nasdaq index rose 2.26 to 715.03.
Without IBM, the industrial average would have been in negative territory. The rise in IBM added 17.5 points to the Dow, according to market technicians.
The market seemed to adjust to Fed Chairman Alan Greenspan’s remarks on Wednesday confirming prognostications of more interest-rate hikes this year. Conventional wisdom before and after Greenspan’s congressional testimony was for about two quarter-point increases by year-end.
What appeared new was Greenspan’s preference for interest rates that were too high, if the only other choice was rates that were too low. Since he controls short-term interest rates, it would be a fair guess he won’t hesitate to raise them even if signs of resurgent inflation aren’t crystal clear.
The tug of war among technology stocks continued.
Intel rose $1.50 to $58, while a disappointing earnings report sent Integrated Device Technology down $7.37 to $18.56. Telecommunications rose $1 to $21.87, California Micro Devices rose 75 cents to $20.75, and National Semiconductor gained 37 cents to $16.37.
Another Dow component, United Technologies, took a tumble on disappointing second-quarter earnings. Its stock fell $3.87 to $62.50 after it reported earnings of $1.18 a share, up from 89 cents last year but below the consensus forecast of $1.26.
The company makes Pratt & Whitney engines and Otis elevators, and it was thought improved economic conditions would give it a more spectacular performance.
A number of analysts said companies that benefit from economic swings, dubbed cyclicals, appear to have peaked out.
Robert Stovall of Stovall-Twenty-First Advisers said the pessimism comes from institutional investors.
Company managers and other insiders have a more chipper attitude, he said.
“The boys and girls who have their hands on the rudder are spending cash on mergers and acquistions and buying their own stock, so they’re pretty optimistic, whereas those who manage portfolios have convinced themselves things look bad.”
Heartland report: Chicago’s Amoco watched its stock hit a new high of $61.25 a share over the last week in anticipation of its Thursday restructuring announcement. The shakeup comes in part over company dissatisfaction with its languishing stock price.
The stock fell $1.50 to $59.62 after the announcement.
– Boston Chicken, which went public less than a year ago, has decided to sell more stock to the public. As this column noted earlier this week, companies that dilute shareholder value with repetitive stock offerings can be disciplined by the market sending their stocks down in warning.
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That didn’t happen with Boston Chicken, at least so far. Its stock rose 25 cents to $37 despite registering for a 2 million share sale. The company has about 17.5 million shares outstanding.