Dow Soars 34; Investor Mood Seen Stronger
Investors’ optimism about the economy sent the stock market soaring Monday. The closely watched Dow Jones average of 30 industrial stocks surged 34.01 points.
Analysts said that optimism had been rising lately and was spurred last week by Federal Reserve Board Chairman Paul A. Volcker’s upbeat appraisal of the prospects for holding down inflation.
“People’s mood on the economy is stronger than it was even a month ago,” said John Connolly, chairman of the investment policy committee at the New York investment house of Dean Witter Reynolds Inc.
“First of all, the numbers have come in better than most people expected, so fear of recession has abated,” he said.
“Secondly, the tax bill is not as threatening as it was a little while ago. The trial balloons coming out of Washington indicate that the incentives for investment will not be eliminated.
“Finally, the fixed-income markets continued to be well-behaved. Interest rates have stayed down, so the attraction of cash is no longer so great. People have to put their money to work.”
For the more whimsically minded, the bull market was ascribed to the San Francisco 49ers’ 38-16 defeat of the Miami Dolphins. The Super Bowl theory holds that a victory in the football championship by a National Football Conference team is a favorable portent for a bull market, while a bear market tends to follow a victory by an American Football Conference team.
Progress Called Masked
Analysts said the stock market has been buoyant in the last two weeks but that progress has been masked somewhat by the Dow index’s hesitant advances and small retreats.
But Monday, the Dow caught up dramatically. It was the index’s 8th biggest jump in a single session and the closing average of 1,261.37 was its highest level in more than a year. That is still 25.83 points below the high of 1,287.2 reached on Nov. 29, 1983, but three other prominent indicators did establish records.
The Standard & Poor’s 500-stock composite index gained 3.91 points to close at 175.23, 2.58 points above the previous record set on Oct. 10, 1983, and the New York Stock Exchange’s composite index of all its listed common stocks closed above 100 for the first time, at 101.12, on a 2.08-point gain. The S&P; index of 400 industrials also reached a record of 196.13, up 4.88.
Paul Elliot, a vice president of Cowen & Co., a New York brokerage firm, said, “The market was overly depressed in December and historically it catches up with itself in January.” He added that the Over-The-Counter stocks and the secondary stocks had been outperforming the Dow blue chip stocks. On Monday, he said, the reverse was true.
Michael Metz of Oppenheimer & Co. said that the major institutions had failed to discern the shift in the market and the upbeat mood of the public until Monday’s session. It is the institutional investors who generally trade heavily in the stocks that make up the Dow Jones industrial index.
“This period will go down in history as the one in which the individual was the firstest with the mostest, “ said Metz. “The small investor has really gone into equities with great conviction for the last two weeks.
“If this is going to develop into the great leap forward,” he added, “it will require sustained individual buying. And, if you have that sustained individual buying, then the market could go higher than anyone expected. The real key will be a shift of individuals from money markets and debt instruments.”
The market opened strong in early morning trading and picked up steam all day. By the time it had closed, advances had outpaced declining stocks by three to one. Volume was very heavy, with 146.83 million shares traded on the New York Stock Exchange.
