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Financial markets

Stock Market Rises Despite Bond Market Concerns

Strategic Insights

— 2 min read

The US stock market experienced a modest rise in trading volumes yesterday, with the Dow Jones industrial average increasing by 28.26 points to 3,861.69 and the Standard & Poor's 500 index rising 2.64 points to 462.47. Meanwhile, the bond market showed some worrying signs, with interest rates on corporate borrowing increasing sharply, which could lead to a recession or the fear of one.

Despite this, analysts remain optimistic about the market's prospects. According to Maria Fiorini Ramirez, head of an economic consulting firm, money managers have been selling bonds and some stocks to raise cash, which is a sign that they are not putting that money to work. This could be a concern for the market. Additionally, Ramirez notes that companies have refinanced their debt when interest rates were low, so they now have cash on hand. This could reduce the impact of higher borrowing costs.

Other analysts believe that the market is not reacting to bad news, but rather an absence of bad news. Alan R. Ackerman, senior market analyst for Reich & Company, notes that earnings growth for the S.& P. 500 is likely to reach 15% for 1994 and as much as 10% for 1995. Many fundamentally strong stocks are also inexpensive, which could attract investors.

Key Takeaways:

  • The Dow Jones industrial average rose 28.26 points to 3,861.69, while the Standard & Poor's 500 index rose 2.64 points to 462.47.
  • The bond market showed troubling signs, with interest rates on corporate borrowing increasing sharply, which could lead to a recession or the fear of one.
  • Money managers have been selling bonds and some stocks to raise cash, which is a sign that they are not putting that money to work.
  • Companies have refinanced their debt when interest rates were low, so they now have cash on hand. This could reduce the impact of higher borrowing costs.
  • Analysts believe that the market is not reacting to bad news, but rather an absence of bad news.
  • Earnings growth for the S.& P. 500 is likely to reach 15% for 1994 and as much as 10% for 1995.
  • Many fundamentally strong stocks are inexpensive, which could attract investors.

Statistics:

  • The Dow Jones industrial average rose 28.26 points to 3,861.69.
  • The Standard & Poor's 500 index rose 2.64 points to 462.47.
  • The Nasdaq composite index rose 4 points to 746.19.
  • The New York Stock Exchange volume was about a quarter below normal, with 211.2 million shares changing hands.
  • The yield on the five-year Treasury note was 7.78 percent yesterday.
  • The long bond, the fixed-income market's benchmark, carried a rate of 7.76 percent.
  • The gap between the five-year and 30-year bond yields was small and occurred in light trading.

Sources:

  • "The Wall Street Journal", December 1994
  • Maria Fiorini Ramirez, Head of Economic Consulting Firm
  • Alan R. Ackerman, Senior Market Analyst for Reich & Company
  • "The New York Times", December 1994
  • "Bloomberg", December 1994

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