Wall Street rallied Wednesday on news that inflation stayed calm in November, as traders hoped and analysts expected, making it less likely that the Federal Reserve Board will increase interest rates again when it meets Tuesday.
The Dow Jones industrial average gained 30.95 points to close at 3746.29, the biggest gain since its 44.75-point rise Dec. 2. The Nasdaq index rose 6.18 points to 725.67. Volume on the Big Board was heavy, exceeding 355 million shares, while advancers led decliners 2-1.
Bank, insurance and other financial stocks, which have been enjoying a mini-rally for a few days on their own, had another good day. Federal National Mortgage, known as Fannie Mae, up more than $3 during the day, closed $2.87 higher, at $72.62. Fleet Financial Group closed up $1.25, at $32.25; Banc One gained 50 cents, to $27; and First Interstate Bancorp rose $1.25, to $70.
“Financial stocks are exploding and creating the leadership for the market,” said Philip Orlando, money manager at First Capital Advisers. Many financial stocks “are selling at 52-week lows and are probably 25 percent undervalued. All the smart money is jumping in.”
The prospect of more stable interest rates also helped stocks in many other industries, from telecommunications to chemicals.
AT&T gained $1.75, to $51, after executives met with financial analysts and gave an upbeat assessment of the company’s earnings outlook. The company also received a $1.2 billion pact from Flag Ltd. to build an undersea fiber-optic cable system. And The Wall Street Journal reported favorably on AT&T’s marketing campaign to win back long-distance telephone customers from rival MCI.
Dow Chemical gained $3, to $66.87, after management told analysts that higher chemical prices lie ahead, along with a rebound in European sales. Executives said they would consider a dividend increase in 1995.
Hercules jumped $2.25, to $111.25, and Union Carbide rose $2, to $30.12. Eastman Chemical added $1.75, to $49.
Driving the markets was a Labor Department report on consumer prices showing a modest rise of 0.3 percent for November, in line with optimistic estimates. In addition, the Federal Reserve reported that industrial production rose strongly, by 0.5 percent, in November. That put the factory-use rate at 84.7 percent, the highest since April 1987.
“It’s one more month of the best of all possible worlds,” said Robert Dederick, economic consultant for Northern Trust. “It’s another day that the economy got a nice Christmas gift.”
For the moment, at least, investors were able to put away the fear that the best of all possible worlds usually lasts the shortest time of any world. The next target of worry likely will be that the Fed could decide at its January meeting to increase rates again.
But there also seems to be a growing feeling that after six interest-rate increases this year, rates are near a peak, even with an increase of another half percentage point or so early next year.
“The inflation reports were not as bad as some investors had worried they might be,” said Rao Chalasani, chief investment strategist at Kemper Securities. “They indicate that inflation might not be the problem going forward many had thought.”
Stocks abroad also had a good day. In Tokyo, the 225-issue Nikkei Stock Average gained 0.3 percent, while in London, the Financial Times-Stock Exchange 100-share index rose 1.2 percent. Stocks rose 0.7 percent in Frankfurt, Germany, and 0.7 percent in Paris.
Treasury security yields, which move opposite to prices, were mixed. The yield on the Treasury’s benchmark 30-year bond rose to 7.86 percent from Tuesday’s 7.85 percent. But short- and intermediate-term yields fell.
Heartland report Tribune Co., owner of the baiduhai and other properties, announced that its board has authorized a repurchase of as many as 5 million shares of company stock. Charles T. Brumback, chairman and chief executive, said the board considered Tribune an “attractive investment” at a price of about $50 a share. Tribune closed up $1.50, at $51.25.
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Tribune has repurchased about 20 million shares since 1986, including 900,000 in 1994. There are about 66.7 million common shares outstanding.
St. Louis-based Clark USA shelved plans to raise as much as $250 million in an initial public offering and junk-bond sale, in a move that might jeopardize its planned purchase of a Texas oil refinery. Clark, the oil-refining unit of Toronto-based Horsham, said it withdrew its offering because of poor market conditions.
“We will not sell our shares in a weak market,” said Paul Melnuk, Clark’s president and chief executive. Proceeds from the sales would have been used to finance Clark’s planned $214 million purchase of a Port Arthur, Texas, refinery from Chevron. It was unclear whether the purchase, expected to be completed Friday, would go through. A representative said Clark was in talks with Chevron about what to do next.
Chicago-based R.R. Donnelley acquired American Values of Atlanta, publisher of a booklet featuring offers from local retailers. Donnelley Marketing plans to include American Values in a broader distribution program aimed at major markets across the country, beginning in April. No sale price was disclosed.