Stock, Bond Prices Rise Sharply; Dow Up 25.80
The stock and bond markets registered substantial gains Tuesday, bolstered mainly by renewed speculation of possible interest rate cuts and a sharp decline in oil prices, analysts said.
The Dow Jones industrial average closed up 25.80 points at 1783.98 as advancers outpaced decliners by a 967-to-575 margin.
Volume at the New York Stock Exchange totaled 112.99 million shares, up moderately from Monday’s four-month low of 85.84 million shares.
As the day began, the Commerce Department announced that it had revised the nation’s first-quarter GNP performance upward to 3.7% from an earlier estimate of 3.2%. Many analysts had expected a downward revision to below 3%.
The gain was not seen as a positive sign for the economy, however, since it was mainly due to an increase of inventories, especially unsold cars. Analysts said the high level of first-quarter inventories would dampen growth in the second quarter.
Economy ‘Not That Strong’
Bond prices, which had initially fallen, turned around, as did stocks, and both rose almost constantly throughout the day. The bellwether 30-year Treasury bond rose about two points, or $20 for each $1,000 in face value.
“The (stock) market rallied on the premise that the economy is really not that strong. Really it is quite weak. And if it is quite weak, then the Fed will have to cut the discount rate,” said Hildegarde Zagorski, an analyst at Prudential-Bache Securities.
As the day continued, oil prices, which had jumped to more than $17 on world markets Monday, took a sharp plunge, while the dollar gained against the Japanese yen and the West German mark.
Contracts for June delivery of West Texas Intermediate, the benchmark U.S. crude, dropped by $1.12 to close at $16.04 a barrel on the New York Mercantile Exchange. In U.S. currency trading, the dollar rose to 168.375 yen from 166.88 yen Monday and to 2.2360 marks from 2.2035 marks.
“If there is one thing that would hold back the Federal Reserve Board from lowering interest rates more, it would be a weaker dollar,” said Thomas Czech, research director at the Blunt Ellis & Loewi securities firm in Milwaukee.
More Gains in Market Needed
Czech pointed out that where the previous rise of oil prices--by nearly $4 a barrel in less than three weeks--had been viewed as inflationary, lower oil prices would indicate lower inflation to come.
This, along with the prospect of a weaker economy, “all in the framework of the dollar going up, takes away one reason why the Federal Reserve might hesitate to cut interest rates,” he said.
Ken Caruana, research director at the Prescott, Ball & Turben securities firm, observed that “to the extent that this has been an interest-rate-driven market, this would also cause equities to increase again.”
Zagorski and Czech warned, however, that the market would have to follow through with more gains today, or, as Zagorski put it, “all this stuff is meaningless.”
Among the NYSE’s most active issues, Sperry stood at 73, down 3/8, after having received a sweetened buyout offer--on a take-it-or-leave-it basis of $75 a share--from Burroughs as merger talks broke off.
IBM was up 2 1/8 at 146; Mobil gained to 30 1/2, and Home Depot, which recently reported that its quarterly earnings were more than twice those of a year ago, was up 3 7/8 at 21.
Among other shares, Data General was up 1 3/4 at 41 5/8, Honeywell rose 1 to 76 1/2 and Zenith was down 1 1/2 at 27.
General Motors was up 3/8 at 76 1/8, Ford rose 1/2 to 76 1/2, Chrysler gained 1 3/8 to 37 3/8 and Honda Motor was up at 69.
Chevron added to 40 and Kerr-McGee rose 3/4 to 29 1/2.
Merck was up 2 1/8 at 183 5/8, Upjohn climbed 1 3/8 to 84 3/8 and Pfizer gained 2 to 60.
Chase Manhattan rose 2 to 41 7/8, Citicorp was up 1 at 57 3/8 and First Boston gained 1 3/4 to 53.
Large blocks of 10,000 or more shares traded on the NYSE totaled 2,225, compared to 1,534 on Monday.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 136.186 million shares.
Standard & Poor’s index of 400 industrials rose 3.23 to 263.89, and S&P;’s 500-stock composite index was higher by 2.91, at 236.11.
The Wilshire index of 5,000 equities closed at 2,441.827, up 23.676.
At the American Stock Exchange, the market value index rose 2.11 to 274.16.
The NASDAQ composite index for the over-the-counter market closed at 385.28, up 1.54.
The NYSE composite index rose 1.47 to 136.06.
Treasury Issues Surge
In the credit markets, the yield on the Treasury’s 30-year bond dropped to 7.55% from 7.72% late Monday. Other Treasury issues also surged higher in value.
In the secondary market for Treasury bonds, prices of short-term governments rose about 1/2 point, intermediate maturities rose about 1 1/2 points and long-term issues were up two points, according to the 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.
In corporate trading, industrials and utilities rose one point in light to moderate trading. Among tax-exempt municipal bonds, general obligations rose 1/2 point and revenue bonds were up 3/8 point. Trading was light to moderate.
Yields on three-month Treasury bills were down three basis points to 6.21%. A basis point is one-hundredth of a percentage point. Six-month bills fell six basis points to 6.22%. One-year bills were off six basis points at 6.31%.
The federal funds rate, the interest on overnight loans between banks, traded at 6.8125%, the same as late Monday.
