(MONEY Magazine) – A stronger U.S. dollar and steady interest rates propelled most of the major indexes to new records. Five times in June the Dow Jones industrial average set new highs -- the last at 2451.05 -- and closed the month at 2418.53. Standard & Poor's 500 retreated to 302.94 at month's end, after topping 309.65 earlier. For the month (and the second quarter as well) the top-performing industry was offshore drilling, up a sharp 25.8%, and the worst performer was home building. Bond prices were also firmer last month, reducing yields. For example, yields for 30-year Treasury bonds dropped to 8.47% from 8.7%. With inflation holding steady at a 3.8% rate for the past 12 months, the three precious metals lost glitter. Silver was down 6% to $7.15 an ounce in June, while platinum was 4.3% lower at $553. The federal budget deficit, after rising nearly 120% in the past five years, is finally showing signs of plateauing. It declined 2% last month. Both the 12-month and five-year forecasts anticipate higher stock prices but also growing risks. According to the 12-month forecast, T-bills will stay steady while long-bond yields will drop to 8%. The five-year forecast, however, sees deteriorating prices for fixed-income securities as long-bond yields climb to 8.7%.

CHART:

Month Year Five years July ago ago ago

Stocks Dow Jones industrial average 2418.53 +5.20% +26.60% +196.80% Standard & Poor's 500-stock index 302.94 +4.40 +20.30 +176.40 NASDAQ over-the-counter index 424.67 +1.90 +4.70 +147.80 Technology stock index 312.29 -2.40 +34.30 +134.40 Top-performing industry: offshore drilling 68.19 +25.80 +73.90 -41.90 Worst-performing industry: home building 49.20 0.60 19.40 +105.40 & Industries to watch: food 401.09 +7.30 +17.00 +349.70 toys 29.28 +3.80 -20.10 +134.80 S&P 500 P/E ratio 20.60 19.03 17.02 7.44

Month Year Five years July ago ago ago

Bonds (yield average) Eight-year A industrial 8.45% 10.15% 8.20% 15.93% 30-year AA+ telephone 10.40 9.16 8.30 15.63 10-year Treasury 8.30 8.53 7.47 14.61 30-year Treasury 8.47 8.70 7.63 14.14 Municipals 8.10 8.32 8.05 12.70

Month Year Five years July ago ago ago

Economic indicators Three-month Treasury bill 5.98% 5.76% 6.23% 13.45% Six-month Treasury bill 6.35 6.44 6.32 14.37 Prime rate 8.25 8.25 8.50 16.50 CPI rate, compared with past periods 3.80 3.80 1.60 6.70 Payroll employment 101,788,000 +0.10 +2.50 +13.40 Housing affordability index 109.4 -2.20 +9.60 +68.80 Dollar index measured against 16 currencies 95.2 +0.60 -9.50 N.A. Gold (ounce) $447.30 -0.80 +5.70 +12.70 Platinum (ounce) $553.00 -4.30 +0.70 +16.40 Silver (ounce) $7.15 -6.00 +28.10 -11.80 Federal budget deficit for past 12 months $174.9 billion -2.00 19.50 +118.40 Gross national product $3.7 trillion * +2.20 +17.80

Month Year Five years July ago ago ago

Common indexes for adjustable-rate mortgages One-year Treasury constant maturity 7.00% 6.50% 6.65% 13.34% 11th District cost of funds 7.22 7.45 8.44 12.17 National mortgage contract rate 8.93 8.79 9.80 15.57

Stock CPI T-bills Long bonds Dow S&P 500 12-month forecast Projected results 5.00% 5.75% 8.00% 2600 335 High estimate 6.00 6.50 9.50 2900 375 Low estimate 4.00 4.75 7.50 2100 305

T-bills Long bonds Stocks Five-year forecast Projected compound annual return 7.3% 8.7% 14.5% High estimate 8.6 12.8 28.0 Low estimate 6.0 4.6 1.0

Notes: As of July 1, 1987. Latest available for payroll employment, housing affordability index, federal deficit, CPI and the common in dexes for ARMs are for May 1987. *The GNP, which is compiled quarterly, is for the first quarter 1987.Sources: Hambrecht & Quist, Standard & Poor's Outlook, Salomon Bros., Morgan Guaranty Trust, HSH Associates, M.D. Sass Investors Services and CDA Investment Technologies.