39.03-Point Surge Lifts Dow Index to New High of 1,792
The Dow Jones industrial average rose by 39.03 points Friday, the third-largest one-day gain in its history. The rally climaxed the biggest week in the history of the closely watched index of blue-chip stocks, a 92.91-point gain that brought the Dow to a record 1,792.74.
“We are in Disneyland, there’s no doubt about that,” said Eugene Peroni, a stock market analyst for the Los Angeles investment firm of Bateman Eichler, Hill Richards. “But that just puts more pressure on investors outside the market to participate.”
Ironically, Peroni and other analysts attributed the market’s enthusiasm generally to signs that government efforts to stimulate the industrial economy remain ineffective.
Despite a continuing slide in interest rates, which should tend to encourage industrial activity, the Federal Reserve Board on Friday morning reported a drop of 0.6% in industrial production in February, compared to the previous month.
Inflation also continued to recede, as the Labor Department reported that the producer price index of finished goods fell 1.6% in February, its largest drop since the department began to compile the index in 1947.
Those factors suggest that there is still room for an expansionist monetary policy--lower interest rates--on which the stock market is feasting.
Profits May Be Down
However, they suggest also that quarterly corporate profit reports, which will start being reported in a few weeks, may be disappointing. Market observers are divided over whether that would take the steam out of the rally, or drive it anew.
For now, though, the market has pessimists looking sheepish. Most major indicators on Friday extended their monthslong string of record performances: The New York Stock Exchange composite index rose 1.69 points to close at a record 136.17; the American Stock Exchange index rose 0.68 to a record 267.81, and the Standard & Poor’s 500 index, the broadest indicator followed by investors in major stocks, rose 3.36 to a record 236.55.
Index ‘Confirmed’
The Dow Jones transportation average, which is traditionally expected to “confirm” the Dow industrial index by matching its performance, did so by rising 5.76 to a record 816.24.
In all, advancing issues outnumbered declines by about 5 to 3 on the New York Stock Exchange. Trading volume on the Big Board totaled 181.87 million shares, the exchange’s eighth-busiest day in history.
Before this week, the biggest weekly gain in the Dow was 87.46 points, during the week that ended Aug. 3, 1984. (Because the index was then at a lower level, closing at 1,202.08, that rally outstripped this week’s in percentage terms--7.8% compared to this week’s 5.46%.)
On a daily basis, Friday’s rise was surpassed only by a 43.41-point gain on Nov. 3, 1982, and one of 43.10 last Tuesday.
Many on Wall Street believe that the latest phase of the bull market is finally attracting individual investors, many of whom appear to be investing through the proxy of mutual funds. Funds of all kinds rose by a net $16.5 billion in January, a record gain.
Still, mutual-fund executives say much of that gain reflects money that investors are placing in bond-based mutual funds, and it appears that institutional activity remains the fuel driving the stock market rally.
At Dreyfus Corp., the mutual-fund house, the fastest-growing funds remain tax-exempt bond funds and one specializing in “Ginnie Mae” securities--those issued by the Government National Mortgage Assn.
Although some analysts have argued that a $40-billion-to-$50-billion surge in investment funds will come to the market from individual retirement account funds, which must be invested by April 15, Dreyfus research director Monte Gordon said that as much as two-thirds of that is still likely to be invested in bonds and bank certificates of deposit.
Program Trading a Factor
Friday’s performance of the Dow industrial index followed a by-now familiar pattern. Although the average was solidly up for much of the day, it experienced some volatile shifts because of the influence of so-called program trading. That is concerted buying and selling by large institutions that can shift millions of dollars at a moment’s notice between stock index futures and baskets of representative stocks.
When the index futures trade at a higher price than the corresponding index, by selling a Standard & Poor’s 500 index future and buying key stocks represented in the index itself, an institution can guarantee itself a short-term profit. The maneuver works also when the future trades at a discount to the index: In that case, the investors buy the future and sell the stocks.
Because such trading is controlled by similar computer programs used by many institutions, it can result in sudden huge moves in the major indexes. Most of Friday’s Dow rally was reflected in the day’s final hours, when the index moved up from only one point above Thursday’s closing figure to its Friday close, nearly 40 points higher.
Still, there were other factors at work. In anticipation of this weekend’s meeting in Geneva of the Organization of Petroleum Exporting Countries, at which there is expected to be an attempt to halt the slide in oil prices, stocks of major oil companies were solid gainers Friday.
