Dow Cruises Through 1,700 Barrier : Blue-Chip Index Up 17.09 Despite Glum IBM Forecast
Shrugging off some bad news from one of its bellwether issues, the stock market experienced one of its strongest days ever Thursday as the Dow Jones industrial average broke 1,700 points for the first time. The closely watched index of blue-chip stocks rose 17.09 points to close at 1,713.99.
The market’s surge, which gained steam in the last hour of trading as institutional buying programs kicked in, came on the fifth-busiest day in New York Stock Exchange history. On the Big Board, 181.74 million issues changed hands. On Wednesday, 158.02 million shares were traded.
The market’s performance came despite a negative forecast from International Business Machines, which said in a glum statement that it finds “an absence of evidence of improvement in the U.S. economy, particularly with respect to capital-equipment buying patterns as we perceive them.”
IBM made its statement in response to downward revisions in some securities analysts’ forecasts for the company, and its stock finished the day at 155 7/8, down 2 3/8.
But the rest of the market turned in an enthusiastic performance of the kind that has made anticlimaxes out of the crossing of 100-point barriers, which were once red-letter happenings.
“This shows that investors want to believe,” said Donald Trott, director of research at the New York investment firm of Mabon, Nugent & Co.
New records were set in the NYSE composite index, which closed at 130.55; the American Stock Exchange market value index, which reached 255.79, and Standard & Poor’s 500 index, which closed at 226.77.
Still, more market analysts are now sensing an impending turnaround, or “correction,” that could strip as much as 200 points off the Dow industrials. For one thing, the Dow index has marched up by some 400 points since Sept. 20 almost without pausing and has been accelerating its rise throughout that period.
An incipient correction from 1,565.71 to 1,502.29 in mid-January was cut short, many analysts believe, by the sudden, sharp collapse of oil prices at that time.
The Dow industrials took only three weeks, or 14 trading days, to move from 1,600 points to more than 1,700.
“We’re getting more concerned that there’s too much complacency about this uptrend,” said Eugene Peroni, technical market analyst for the Los Angeles firm of Bateman Eichler, Hill Richards. “But on days like this, it would appear that the Dow is destined for another galaxy.”
Others note that the first three months of the year has been a generally bullish quarter for the stock market since the advent of IRA and Keogh plans five years ago. The retirement plans give individual investors an incentive to put money in financial assets during the first quarter.
An estimated $45 billion of IRA funds is available this year for investment, as well as about $125 billion of bank certificates of deposit maturing from earlier years. Many CDs were purchased at interest rates of 12% or above two years ago, and only the stock market offers investors potential yields that high today.
Questions on Economy
“A substantial amount of that money is finding its way into equities,” Trott said, “but our concern is the market will become more vulnerable in March and April as the supply of money from those sources becomes exhausted.”
Some professional investors say they are wary, furthermore, of the scant indication that the fundamental economy is growing. “The market’s been a little divorced from the economic underpinnings recently,” said Ben Niedermeyer, senior vice president of Janus Capital Corp., a Denver-based mutual fund and private portfolio management firm.
Niedermeyer noted that IBM’s remarks Thursday “don’t bode well for economic growth” and said that Janus has bet on the prospect that interest rates will continue to fall--both because oil prices are declining and because lower corporate growth will ease demand for capital--by buying interest-sensitive stocks such as electric utilities and money-center and regional banks.
Janus has avoided the cyclical stocks favored during periods of expansion, such as aluminum and chemical stocks, he said.
As it happens, interest-sensitive stocks were hot performers in Thursday’s market. Among major banks, Citicorp stock rose 2 7/8 to close at 53 5/8, and Chase Manhattan Corp. rose 3 3/8 to close at 42.
Bond Rally Continues
In the credit markets, bond prices roared ahead, extending the previous session’s powerful rally on expectations of lower levels of inflation. Interest rates on long-term securities tumbled while rates on shorter-term maturities held near recent levels.
The Associated Press reported that the Treasury’s benchmark 30-year bond was up more than 2 points, or $20 for each $1,000 in face amount. The yield on the bond fell to 8.30% from 8.48% late Wednesday.
In the secondary market for Treasury securities, prices of short-term governments were up from point to 14/32 point, intermediate maturities rose from 19/32 point to 1 6/32 point and long-term issues jumped as much as 2 5/32 points, according to the investment firm of Salomon Bros.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, moved up 0.96 from late Wednesday to 115.00. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, increased 9.98 to 1,205.07.
In corporate trading, industrials rose 1 1/2 points and utilities were up 1 points in heavy activity.
Among tax-exempt municipal bonds, revenue bonds rose 3/4 point and general obligations went up 1 1/2 points in active dealings.
Yields on three-month Treasury bills rose one basis point to 7.02%. Six-month bills dipped four basis points to 7%, and one-year bills fell eight basis points to 6.96%.
The federal funds rate--the interest on overnight loans between banks--traded at 7.875%, compared to 7.5% late Wednesday.