Stocks Continue to Rise to New Record Levels; Dow Index Climbs 7.06
The stock market gained more ground today, extending Wednesday’s advance to record highs.
Analysts said enthusiasm persisted over the performance Wednesday of the stock, bond and oil markets as investors concluded that hostilities between the United States and Libya apparently wouldn’t lead to any major economic disruptions.
Stock prices rose sharply Wednesday as both oil prices and interest rates tumbled.
Today, however, the markets encountered something of an obstacle in the government’s report that the gross national product expanded at an annual rate of 3.2%, after adjustment for inflation and seasonal factors, during the first quarter.
Growth Exceeded Estimates
That growth, which exceeded most advance estimates on Wall Street, raised some doubts over whether the Federal Reserve Board will cut its discount rate in the near future.
The Dow Jones average of 30 industrials rose 7.06 to 1,855.03, bringing its gain over the past four sessions to 64.85 points.
Advancing issues outnumbered declines by about 3 to 2 on the New York Stock Exchange.
Big Board volume totaled 161.40 million shares, against 173.83 million in the previous session.
The NYSE’s composite index gained .51 to 140.09. At the American Stock Exchange, the market value index was down .21 at 273.72.
Bond prices turned mixed today after release of the GNP report. The Treasury Department’s bellwether 30-year Treasury bond dropped nearly 3/4 point, or $7.50 for each $1,000 in face amount, in early trading after jumping 3 points on Wednesday.
The yield on the 30-year bond rose to 7.16% after slipping to 7.11% the day before, the lowest level since the early 1970s.
The bond market’s strong session Wednesday was caused partly by intense speculation that the gross national product for the first quarter would show extreme weakness and might compel the Fed to stimulate the economy by lowering the discount rate, the loan fee charged to banks. Such a cut would push down interest rates and make bonds a more attractive security.
But today the Commerce Department said the gross national product grew at a 3.2% annual rate from January through March, the best in a year and more than four times the pace of activity during the last three months of 1985.
While many economists still saw weakness reflected in the figures, the report diluted hopes of an imminent cut in the discount rate, and investors sold bonds.
“It did have an impact on the market, primarily because of erroneous rumors that the GNP would be negative,” said Ward McCarthy, senior money market economist at Merrill Lynch Capital Markets, a New York investment firm.
‘Buy on Rumor, Sell on News’
“Going by the old dictum, that in the bond market you buy on the rumor and sell on the news, the bond market had been at a fantasy level,” he said.
Some analysts maintain a discount rate cut is inevitable because of indications that the five major industrialized powers are coordinating actions to push interest rates down and invigorate economic growth.
The French government said Wednesday that its recent rate reduction was part of such an effort, and reports from Japan suggest that its central bank will take a similar step soon.
In the secondary market for Treasury bonds, prices of short-term governments fell about point, intermediate maturities fell about 1/2 point and long-term issues fell nearly 3/4 point in early trading, according to the New York investment firm of Salomon Bros.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The Merrill Lynch Daily Treasury Index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, rose 1.23 points at midday to 121.33. The Shearson Lehman Daily Treasury Bond Index, which makes a similar measurement, fell 4.82 to 1263.66.
In corporate trading, industrials and utilities fell point in light dealings.
Among tax-exempt municipal bonds, general obligations rose point and dollar bonds were up 1/8 point. Trading was light to moderate.
Yields on three-month Treasury bills fell 6 basis points to 5.84% in early trading. A basis point is one-hundredth of a percentage point. Six-month bills fell 5 basis points to 5.84% and one-year bills were off five basis points at 5.84%.
The federal funds rate, the interest on overnight loans between banks, traded at 6 3/4%, down from 6 15-16% late Wednesday.