Dow Soars 36; Optimism on Interest Rates Sparks Rally
The stock market rose sharply Friday, bringing an upbeat finish to a week that began with a record-setting decline.
Analysts attributed the revival of traders’ enthusiasm to falling interest rates in the credit markets.
The Dow Jones average of 30 industrials climbed 36.06 to 1,874.19. It was the biggest point gain since the index rose 38.32 on April 16 and its eighth-largest advance ever. That left the average with an 11.71-point loss for the week.
Volume on the New York Stock Exchange reached 141.20 million shares, up from 109.06 million on Thursday.
As trading began, investors were confronted with new evidence that the economy remained sluggish. The Federal Reserve reported a larger than expected 0.6% drop in industrial production for May.
Fed May Relax Credit Policy
Recent data like that have dampened stock traders’ hopes for any early pickup in the growth of business activity and corporate profits. Such concerns were cited when the Dow lost 45.75 points Monday.
But on Friday, the figures were interpreted as increasing the likelihood that the Federal Reserve will deem it necessary to relax its credit policy further.
In the credit markets, yields on short-term Treasury bills fell about 20 basis points, or hundredths of a percentage point. Prices of long-term government bonds rose about $20 for every $1,000 in face value.
Financial stocks in particular benefited from the drop in interest rates. Federal National Mortgage gained 7/8 to 35 3/4, H. F. Ahmanson 1 1/8 to 23 3/4, CalFed 2 to 35, Downey Savings & Loan 1 3/8 to 21 1/8 and Great Western Financial 2 3/4 to 44.
Financial Corp. of America, however, fell 1 5/8 to 9 3/8 after an article in Friday’s New York Times reported the company’s chairman as saying that he expected an increase in problem loans.
IBM, Eastman Kodak Rise
Among the blue chips, International Business Machines rose 1 5/8 to 149 5/8, McDonald’s 2 1/8 to 101 3/4, Eastman Kodak 1 to 60 1/2 and International Paper 1 to 64 1/2.
Auto stocks advanced as domestic car makers posted a modest increase in earlyJune sales. General Motors added 1 1/2 to 78, Ford Motor 1 3/8 to 54 3/8 and Chrysler 1 1/8 to 36.
Safeway Stores was the fifth most active issue on the NYSE and gained to 47 7/8. The company said it intended to remain independent despite overtures from Dart Group.
In the daily tally on the Big Board, advancing issues outnumbered declines by about three to one. The exchange’s composite index jumped 2.18 to 141.00.
USF&G; was the most active NYSE-listed issue, rising 7/8 to 40. Detroit Edison followed, unchanged at 16 3/8. San Diego Gas & Electric was third, rising 5/8 to 34 7/8.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 163.24 million shares. A total of 2,490 large blocks of 10,000 or more shares traded on the NYSE.
Santa Monica-based Wickes led the Amex actives with 3.6 million shares changing hands, easing 1/8 to 6. A Wickes spokesman declined to comment on speculation that the company is close to announcing an acquisition.
Bond prices rallied strongly and short-term interest rates plunged.
The Treasury Department’s key 30-year bond soared $20 for each $1,000 in face amount, and its yield declined to 7.46%, compared to 7.66% in the previous session.
In the secondary market for Treasury bonds, prices of short-term governments rose 3/4 point, intermediate maturities rose 1 3/4 point and long-term issues were up two points.
In corporate bond trading, industrials and utilities were about one point higher in moderate dealings. Among tax-exempt municipal bonds, general obligations and revenue bonds also rose about 3/4 point. Trading was moderate.