Dow Rises 32.9 as Market Sheds ‘Insider’ Fears
Signaling that they have shed their worst fears about a widening insider trading scandal on Wall Street, investors bought stocks heavily Friday and powered the Dow Jones industrial average to a 32.90-point gain.
The stock market’s activity capped a sharp three-day recovery in which the Dow advanced more than 76 points.
The closely watched index of 30 industrial stocks finished the session at 1,893.56, more than making up for the sharp slide earlier in the week.
Dow Fell 56 Points
The Dow had fallen 56.38 points on Monday and Tuesday on news that professional speculator Ivan F. Boesky had agreed to pay the Securities and Exchange Commission $100 million to settle insider trading charges and was cooperating with a federal investigation that threatened to involve some of Wall Street’s biggest firms and most prominent executives.
On Friday, gaining stocks outpaced losers by about 2 to 1 on the sixth heaviest volume in market history as 200.65 million shares changed hands. Blue-chip stocks played a starring role, with Eastman Kodak, Hewlett Packard, International Paper, 3M, General Electric and Exxon all gaining a point or more.
The best-performing stocks were those of companies with strong business fundamentals, rather than the takeover candidates that have been dominating trading in recent months--a sign that was considered positive by analysts.
The shift in market leadership was heartening to small investors, many of whom were still trying to figure out where they fit into a market in which traders appeared to be unfairly profiting from inside information. Many investors had felt themselves hopelessly outgunned by professional traders even before news of the Boesky scandal broke.
‘Fairer Stock Market’
“I do my homework and, if all this leads to a fairer stock market, I will be better off,” said George Hansen, a 53-year-old retired restaurant owner who spends many weekdays watching the market at discount broker Charles Schwab & Co.’s main office in San Francisco.
Still, a new Wall Street Journal-NBC News poll conducted Monday and Tuesday showed that 83% of investors believe that insider trading was common among investment professionals.
And only 29% of those who own stock agreed with the statement: “The small investor can do as well as or better than the large institutional investor.”
Skeptical Investors
Such skepticism was reflected during interviews with individual investors conducted Friday by The Times.
“There’s no place in the market for the little guy,” said Ken McComb, a retiree who lives in Glendale. “My feeling is you should stay out of the market except in mutual funds.”
Many seemed cynical about the extent of insider trading. “It’s bad, but men are wicked,” said Robert Holden, a private investor in San Pedro. “There is always going to be someone who has better information than I do.”
However, small investors have not given up their hopes of coming up with stock market winners. At Schwab’s San Francisco office Friday, there was no shortage of people trying to beat the professionals. “The nimble small investor can capitalize on things like the Boesky scandal,” said George Bayone, an airline ground-support worker who dabbles in the market.
“The market has a way of correcting itself,” he added. “It’s all psychology.”
‘People Got Panicked’
David Fong, a 22-year-old student in San Francisco, said he is confident in his ability to use “knowledge” to counter emotional swings in the market. “People got panicked all of a sudden earlier this week, and I don’t know why. Boesky’s not the only one. Insider trading is an open secret.”
To be sure, psychological factors played a key role in this week’s market action. The scandal hurt the prices of takeover stocks, disrupting the rest of the market. By mid-week, analysts said, blue-chips began to look like bargains.
Now, even some of the takeover stocks have recouped part of their losses. Computer-driven program trading--in which professional investors trade on discrepancies between the stock market and the futures market--contributed to Friday’s rise.
Other Indexes Up
Beyond the Dow Jones index of 30 key stocks, broader measures of the stock market’s movement also were up. The New York Stock Exchange index was up 1.92 at 140.94. Standard & Poor’s 500-stock composite index was up 3.81 to 245.86. The American Stock Exchange and over-the-counter stocks also closed higher.
Friday’s action leaves the Dow average just seven points shy of 1900--a level that many analysts consider a psychological barrier--where the market has faltered in recent weeks. Now, with the market’s having apparently shrugged off a major setback like the Boesky scandal, some analysts think the barrier will be hurdled and the market’s record closing high of 1919 will be topped.
Victor Zonana reported from San Francisco and Tom Furlong reported from Los Angeles.
