Dow Soars to Record 1,955 on 3rd-Biggest Gain Ever
Stock prices rocketed to a record high Tuesday amid expectations that interest rates may fall further and hopes that the Reagan Administration may be moving to resolve the Iran arms-trading controversy.
The Dow Jones industrial average vaulted 43.03 points, its third-greatest jump in history, to a record 1,955.57. Volume of 230.35 million shares made it the New York Stock Exchange’s fourth-busiest day ever.
The advance in the industrial average marked a 138-point gain since the plunge of Nov. 18, when news of arbitrageur Ivan F. Boesky’s insider-trading settlement cast a pall over takeover stocks and much of the market.
Rallies in the bond and bond-futures markets Tuesday underscored growing confidence that the Federal Reserve Board will take interest rates down at least one more notch. Also a factor was the calming effect of President Reagan’s mid-day announcement that an independent counsel will investigate the Iran affair, analysts said.
The day’s market activity had “volume, breadth and momentum that astonished everyone,” said Michael Metz, market analyst with the stock brokerage firm of Oppenheimer & Co. in New York, who joined several other analysts in predicting that the Dow may cross the 2,000-point threshold by year’s end.
The Dow’s advance was only a hair’s breadth short of its largest single-day jump, the 43.41-point gain posted on Nov. 3, 1982, and the second-largest gain, of 43.10 last March 11. The Dow last reached a record on Sept. 7, at 1,919.71.
Advancing stocks outnumbered losers by a 4-1 ratio on the New York Stock Exchange. Although many secondary stocks did not keep pace with blue-chip issues, another key index, the Standard & Poor 500-stock index, also set a record. It gained 4.95 points, closing at 254.
A record was also set by the Dow Jones transportation index, which includes many blue-chip stocks. It advanced 14.02 points to 858.84.
Cash Flows Into Stocks
Metz and other analysts said the market’s advance has been aided by the confluence of declining interest rates, low inflation and a slow-growing economy. Conditions are such that many corporations have not tied up cash in inventory or ambitious capital spending programs, Metz said, and can instead pour money into stocks.
“It’s been that way for most of two years, and it’s ideal for the market,” he said.
Also contributing to the day’s activity was the so-called program trading, in which traders try to profit from the price difference between stock index futures and the collections of stocks that make up the indexes. Traders rushed in with heavy orders for such stocks as soon as the day’s activity began.
Some had hoped for signs of a strengthening economy in Tuesday’s announcement of the latest change in the Commerce Department’s index of leading indicators. But the 0.6% rise was far short of what would be needed to suggest such strengthening; the figure suggested instead that the economy will continue its slow and fitful growth of recent quarters.
That further persuaded investors that the Federal Reserve Board could cut interest rates without fear of stimulating new inflation.
Some of the best known stocks were among Tuesday’s biggest winners. Nine of the 30 stocks that make up the Dow Jones industrial average gained at least $2, including Merck, IBM, American Express, Du Pont, American Can, Minnesota Mining and Procter & Gamble.
Merck, which led a strong pharmaceutical sector, gained an impressive $4.875 to $115. Stocks of pharmaceutical firms, which do much business overseas, have recently been helped by the weakness of the dollar.
GM a Loser
One standout loser was General Motors, which lost 75 cents and closed at $70.75 after Monday’s news that the auto maker had cut its ties with entrepreneur H. Ross Perot.
The most active stock on the New York Stock Exchange was Coca-Cola Enterprises, which has not lived up to expectations since it began selling stock to the public on Nov. 21 at $16.50. On Tuesday, it fell 62.5 cents to $14.625 on volume of 14.395 million shares.
Ben Niedermeyer, president of the Janus Fund in Denver, said expectations of a further cut in interest rates have helped interest rate-sensitive stocks recently to outperform the market for the first time since the first quarter of this year. These include savings and loan, banking, insurance and telephone utility stocks, all of which performed well Tuesday.
Among the advancing savings and loan stocks, for example, were Ahmanson, up $1.625 at $21.625; Great Western Financial, which rose $2 to $43; and Golden West, up $2.25, to $33.25.
Merger Stocks Gain
Chesebrough-Ponds Inc., which agreed Monday to be acquired by Unilever for $72.50 a share, was up $3.125, to $71.625. Unilever’s stock rose $4.375, closing at $233.375 after having reached a 52-week high of $234 in the course of the session.
Most computer stocks advanced, although Honeywell fell $1.375 to $70.125. The company said it expects substantial losses for the fourth quarter and the full year, largely because it will take a $250-million charge against earnings in the fourth quarter by writing down the book value of its computer business.
Honeywell announced that it is forming a consortium with NEC Corp. of Japan and Compagnie des Machines Bull, the French computer maker, that will give those companies control of the faltering Honeywell computer business.