NEW YORK -- U.S. stocks closed mixed as optimism that corporate earnings would flourish later this year boosted technology and paper companies, offsetting weaker telephone and oil issues.
Drug, railroad, bank and auto stocks -- ranging from Merck & Co. to General Motors Corp. -- also advanced. Declines in food, retail, and entertainment companies, from Campbell Soup Co. to Walt Disney Co., ended three straight days in which stock market indexes moved higher together.
"The rate of gain [in the stock market] seems clearly unsustainable," said Tom Jackson, money manager at Prudential Equity Fund, in charge of more than $6 billion. "But I can't in all honesty see any reason why one should be bearish. We're up a lot, but I think there are still a fair number of dirt cheap or reasonably priced stocks out there," he said.
Virtually every major stock market index rose, except the Dow Jones industrial average. The Dow industrials fell 0.34, to 4,702.39, after rising to a record-high 4,728.32 during the day, hurt by falling prices for Aluminum Co. of America, Minnesota Mining & Manufacturing Co. and Caterpillar Inc. The average has surged 30 percent since Thanksgiving.
Archer-Daniels-Midland Co. shares fell $1.875, to $15.875, amid reports of an FBI inquiry into price fixing. The probe may have made some investors "a little concerned about [second-quarter] earnings," and been a catalyst for some stocks' retreat, said Joseph DeMarco, head of equity trading at the $4 billion HSBC Asset Management, a unit of Hongkong & Shanghai Bank.
"But people are somewhat willing to look over weakness in earnings now in anticipation of an economic strengthening brought about by lower interest rates" later this year, Mr. DeMarco said.
Among broader market measures, the Dow Jones transportation average jumped 51.47, to 1,890.98, breaking an 18-month-old record set in January 1994. The rise in the Dow transports "reconfirms the bull market trend which we have had in place since January of 1991," said Charles Carlson, editor of Dow Theory Forecasts in Hammond, Ind.
The venerable Dow Theory, a market tenet ever since Charles Dow thought it up in the 19th century, holds that a new stock market trend has to be confirmed by a move in both the Dow Jones industrial and transportation averages to be meaningful. "The Dow Theory is giving a buy signal," Mr. Carlson said.
The Standard & Poor's 500 index added 0.82, to 557.19, eking out its 46th record of the year. Almost 13 stocks rose for every nine that fell on the New York Stock Exchange, where trading volume fell to 413.7 million shares from 466.5 million Friday.
On the Nasdaq stock market, the composite index surged 6.87, to 976.63, its 33rd record this year. Microsoft Corp., Intel Corp., Roadway Services Inc., Applied Materials Inc. and Oracle Corp. fueled the rally. The Russell 2000 index of small-company stocks also reached a record, rising 1.32, to 290.67, as did the American Stock Exchange Market Value Index, up 0.97, to 506.17.
The Wilshire 5000 index also rose 8.62 to a record 5480.35.
Bolstered by the Federal Reserve's interest rate cut last week, the first in almost three years, investors are confident corporate earnings would rise as the economy picks up steam later this year and in 1996, traders said.
Technology stocks, paced by software and hardware makers, rallied for a fourth day as investors anticipated strong second-quarter earnings. Motorola Inc.'s earnings are scheduled for release today, as is the industry's closely watched book-to-bill ratio, measuring new orders in June. Intel Corp. earnings are due July 18.
Microsoft rose $3.25, to $98.875, Coherent Inc. climbed $1.75, to $31.75, and Kulicke & Soffa Industries Inc. surged $1.625, to $70.50. Intel climbed $2.016, to $70.266, Silicon Graphics Inc. gained $1.125, to $44.375 and Cray Research Inc. rose $1.125, to $29.
For the fifth day in the past six, companies whose businesses depend on an expanding economy outstripped consumer-related stocks that tend to grow regardless of economic conditions.