Bond Rally Spreads to Stocks; Dow Advances 8.40 to a Record High
Stocks surged to record levels Thursday with a broad advance in moderate trading.
The upswing was attributed to a rally in the bond market, signs of improved corporate earnings in the months ahead and the restart of congressional talks aimed at forming a new federal budget.
The Dow Jones average of 30 industrials climbed 8.40 to an all-time high of 1,332.21, eclipsing its previous peak of 1,327.28 reached June 6. The Dow Jones transportation average gained 6.56 to 663.04, surpassing its previous high of 659.83, also set June 6.
The New York Stock Exchange composite index also hit a record, gaining 0.59 to 110.72, as did Standard & Poor’s 500-stock composite index, which rose 1.17 to 191.23. The previous highs for those indexes were 110.69 and 191.06, respectively.
Overall advances led declines by nearly three to two on the NYSE, and Big Board volume totaled 106.73 million shares, against 94.13 million Wednesday.
Wall Street Encouraged
The market recently had nibbled at new highs in intra-day trading but was unable to maintain those levels at the close.
On Thursday, however, stocks were supported throughout the session by the rally in the bond market, where prices of long-term Treasury bonds rose more than a point, or $10 for every $1,000 in face value. As bond prices rise their yields fall, making returns on stocks relatively more attractive to investors.
Credit analysts said the bond market’s advance reflected Wall Street’s happiness that there was relatively strong investor demand for the Treasury’s sale this week of $17 billion of new securities.
Wall Street also was encouraged that House and Senate negotiators agreed Thursday to resume talks on a compromise 1986 federal budget, analysts said. The talks abruptly broke off earlier this week amid disputes over defense spending and Social Security benefits.
In addition, there is growing optimism that the economy is strengthening from its sluggish performance earlier this year, which, together with recent declines in interest rates, is setting the stage for a rebound in corporate earnings in the second half of 1985, said Robert Stovall, investment strategist at Dean Witter Reynolds.
“The market is saying that second-quarter earnings don’t matter,” he said.
That optimism seemed apparent in computer-related stocks, which are rebounding from a severe slide that accompanied the industry’s sales slump, analysts said.
Industry leader International Business Machines climbed 7/8 to 124, Burroughs was up 7/8 at 58 3/4, Data General gained 1/2 to 38 and Digital Equipment jumped 1 3/4 to 95 5/8.
With the market at record highs, brokerage stocks also advanced in heavy trading. Merrill Lynch rose 1 to 32 3/8, Phibro-Salomon gained 1 1/2 to 42 3/8 and First Boston spurted 1 7/8 to 81 7/8.
Airline issues generally moved up amid increasing takeover speculation within the industry. Pan American rose 1/8 to 6 7/8 and topped the NYSE’s active list, with a 856,200-share block crossing at that price. AMR climbed 1 3/8 to 47 3/8 and NWA was up 3/4 at 55 after surging 5 points Wednesday. But Delta fell 5/8 to 49.
American Hospital Supply rose 1 to 38 7/8 after Baxter Travenol, down 3/8 at 15, said it planned to sweeten its bid to acquire the company. Hospital Corp. of America, which previously agreed to merge with American Hospital, was up 3/8 at 48 5/8. A 1.18-million-share block of Baxter Travenol traded at 15.
More Large Blocks
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 126.83 million shares.
Large blocks of 10,000 or more shares traded on the NYSE totaled 2,175, compared to 1,794 on Wednesday.
The Wilshire index of 5,000 equities closed at 1,970.039, up 10.844.
Standard & Poor’s index of 400 industrials rose 1.30 to 211.27.
At the American Stock Exchange, the market-value index rose 1.43 to 229.69.
The NASDAQ composite index for the over-the-counter market closed at 295.34, up 1.94.
The Treasury Department sold $4.5 billion in 20-year, one-month bonds at an average yield of 10.75%, down sharply from 12.04% at the last similar auction March 28. That completed $17 billion in sales of new Treasury notes and bonds this week. Earlier, issues of four-year and seven-year notes attracted relatively strong investor interest.
The bond market showed little reaction late in the day to the Fed’s report of a $1.5-billion decline in its M1 measure of the money supply.
In the secondary market for Treasury bonds, prices of short-term governments gained 11/32 point, intermediate maturities were up between point and 1/2 point and long-term issues climbed 26/32 point, according to the investment firm of Salomon Bros.
But Telerate Systems, a financial information firm, was quoting some intermediate- and long-term issues as being up by a full point.
The movement of a full point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
In corporate trading, industrials and utilities rose 5/8 point in light trading, Salomon Bros. said. It said that, among tax-exempt municipal bonds, general obligations were unchanged and revenue bonds rose 3/8 point in light to moderate activity.
Yields on three-month Treasury bills fell 9 basis points to 6.88%. Six-month bills dropped 10 basis points to 7.08% and one-year bills were off 6 basis points at 7.32%. A basis point is one-hundredth of a percentage point.
Yields on 30-year Treasury bonds fell to 10.54% from 10.63% on Wednesday.
The federal funds rate, the interest on overnight loans between banks, rose to 8%, up from 7.375% on Wednesday.