Dow Soars 38.32 to New High as Hopes Grow for Decline in Discount Rate
Declining oil prices and expectations of a new cut in the discount rate on Wednesday awoke the stock market from a three-day snooze and drove the Dow Jones industrial average up 38.32 points to a record 1,847.97.
The market was also buoyed by a rallying bond market, some unexpectedly strong quarterly earnings reports and investors’ relief that the U.S. military strike against Libya had passed with no ill effect--for the moment--on the flow of Middle East oil.
Trading volume rose to 173.83 million shares from Tuesday’s 123.65 million on the New York Stock Exchange, where rising stocks outnumbered decliners by more than three to one.
“There’s been hesitation in the face of the Libyan turmoil, but that seems to be giving way to the forces that drove the market in the first quarter,” said Newton Zinder, market analyst with E. F. Hutton.
The Dow’s point gain was the fifth largest ever and exceeded 44 points shortly before the close of the session. Two broader market indexes, the Standard & Poor’s 500-stock index and the New York Stock Exchange composite index, also set records.
Reports Awaited
Some market watchers said speculation that Libyan leader Col. Moammar Kadafi had been killed or forced to leave Libya had also helped the market by offering hopes of more stability in the Middle East. However, it was reported after the close of trading that Kadafi appeared on Libyan television and radio.
Many analysts expect new evidence of a sputtering economy to be announced today when the government reports first-quarter figures on the gross national product. Many believe that such bad news will prompt the Federal Reserve Board to lower the discount rate in an effort to stimulate the economy.
Some speculate the action may come as early as Friday.
Other evidence of a shaky economy emerged Wednesday with government reports of a monthly decline in housing starts and a fall in the industry operating rate.
“It’s a familiar pattern--bad news for business is good for the stock market because it leads to further cuts in interest rates,” said Michael Metz, analyst with Oppenheimer & Co.
Adding a further fillip to Wednesday’s rally was an unexpectedly positive earnings report from AT&T;, which shocked the market last quarter with a weak earnings report that many read as proof of the telephone giant’s difficulties in selling computers and heavy telephone equipment. AT&T;, the most widely held stock, jumped 2 1/8 to 24 1/2. It was also the most active Big Board issue, with composite trading of 14.3 million shares.
Increasing Doubts
“A lot of the good news at AT&T; was the result of a bookkeeping change, but it helped the tone of the market nonetheless,” Metz said.
Oil prices declined on increasing skepticism that the current Organization of Petroleum Exporting Countries meeting in Geneva will bring any decision to cut production. May contracts for American crude ended the day at $11.43 a barrel, down $1.27 from Tuesday’s close.
Walt Disney Co. was the fourth most active Big Board stock, gaining 3 1/2 to 46 3/4. Analysts expect fear of overseas terrorism to keep Americans home this summer and see Disney as a primary beneficiary.
Biotechnology stocks paced the day’s performance.
“People have recently taken a look at some of these biotech stocks, which offer a lot of flash and still not much in the way of earnings,” said Carol Morrow, a technical market analyst with Piper, Jaffray & Hopwood in Minneapolis.
Among them, Genentech spurted 11 3/4 to 96, Cetus rose 5 1/2 to 40 3/4 and Applied Biosystems edged up 3 5/8 to 41 1/8. Cetus announced that it has received two patents for work in testing synthetic DNA.
Other blue-chip gainers included drug maker Merck, which rose 4 3/4 to 178 on news of improved first-quarter earnings; IBM, which was up 2 1/8 to 154 3/4; McDonald’s, up 5 3/4 to 104 3/4, and Woolworth, which gained 3 to 81 following an announcement that the retailer plans to add 300 more stores.
The fall in oil prices ignited the transportation issues. UAL, parent of United Airlines, jumped 4 to 61; AMR, parent of American Airlines, rose 3 3/4 to 59 7/8 despite a poor earnings report, and Delta gained 2 1/8 to 45 5/8.
Bond prices piled up gains in a powerful rally and interest rates tumbled as traders grew increasingly confident that the Fed will take steps to rejuvenate the economy, the Associated Press reported.
The bellwether 30-year Treasury bond surged more than 3 points, or $30 for each $1,000 in face amount. The yield on the Treasury’s 30-year bond slid to 7.11% from 7.32% late Tuesday.
