Rally Resumes at Full Blast; Dow Hits New Record : Analysts Liken Resurgence to ‘Hollywood Script,’ Say Correction Unlikely Soon
The stock market demonstrated surprising new resolve to resume its boisterous January rally Tuesday, fully recuperating from Friday’s cataclysm and powering the Dow Jones industrial index to yet another record level.
Amid heavy trading, the Dow Jones industrial average charged ahead 43.17 points--the fourth-largest daily point gain ever--to a record 2,150.45, breaking the record 2,145.67 set last Thursday.
Likening Tuesday’s strong and largely unexpected resurgence to “a Hollywood script,” A. G. Edwards & Sons market strategist Alfred Goldman said he cannot help but be “very impressed by a market that can get itself overbought and still resist opportunities to collapse.”
Goldman is one of a growing number of Wall Street analysts who think that the market, which has advanced on 16 of the last 18 trading days, “has a lot of internal excesses and is getting ahead of itself.” But as Tuesday’s strong comeback demonstrates, any excesses in the market are not yet translating into a stock-buying ceiling and, by most Wall Street predictions, will not any time soon.
‘Isn’t a Chance in Hades’
“There isn’t a chance in Hades . . . that we’re going to get a real correction,” said Gene Seagle, director of technical research for the Gruntal & Co. brokerage in New York, unless two major events occur. First, he said, the Federal Reserve Board would have to take steps to stop the slide of the dollar against foreign currencies and, second, the U.S. Treasury’s planned $30-billion issue of securities this quarter would have to raise less money than expected.
Rather than a crash, Goldman predicted, “I think we’re going to see this baby take itself down from 120 m.p.h. to a normal 55 m.p.h.”
Wall Street, however, has consistently underestimated one of its strongest rallies ever--most notably after Friday’s frenzied stock selloff. On that, the stock market’s wildest day ever, the Dow catapulted to a record 64.68-point gain, then dramatically plunged a nerve-wracking 116.71 points in just 71 minutes before closing at 2,101.52, down 44.15 for the day.
Apprehensive market strategists quickly predicted that the rally had either taken time out to catch its breath or had run out of steam altogether. And for some, Monday’s inconsequential 5-point gain in the Dow only added weight to their argument.
Instead, the market burst out of the gates Tuesday with a surge of buying that drove prices up more than 24 points in the first 15 minutes of trading. Two factors were strongly influential, analysts said: heavy computer-directed trading by institutions from the opening bell and sharp gains in paper and forest product stocks after Stone Container Corp. announced that it had signed a definitive agreement to acquire the outstanding shares of Southwest Forest Industries.
“Monday was quiet because people were shellshocked (from Friday’s market) or snowed in” from the winter storm in the East, said George Pirrone of the Dreyfus Corp. investment firm. “But once they saw things start off strongly (Tuesday) morning, it was like a rolling stone from there.”
The Dow indicator was never in minus numbers Tuesday, although it did sputter in the afternoon session. After the initial price surge, it rose to more than 41 points over Monday’s close, retreated to a 19-point gain and then worked its way steadily higher.
Solid Gains
Gauges of market activity that are broader than the Dow index of 30 blue-chip companies also showed solid gains and set some records of their own. Standard & Poor’s 500-stock index climbed 4.16 to 273.75, and the New York Stock Exchange composite index rose 2.22 to 155.85, both just shy of their records set last Thursday.
Elsewhere, the Dow Jones transportation average, buoyed by news that Norfolk Southern is exploring the prospect of acquiring Piedmont Aviation, rose 19.38 to a record 884.93, and the American Stock Exchange index rose 3.74 to 297.83, also a record.
Advancing stocks outnumbered decliners on the New York Stock Exchange 1,135 to 432. In all, more than 192 million shares changed hands on the NYSE.
In over-the-counter trading, the NASDAQ index gained 2.77 points to 390.75. Advancing issues in that market outnumbered declining stocks by about four to three.
Also fueling the day’s powerful advance, analysts said, were the same factors that have been credited since the year began: the weak dollar, liquidity, heavy trading by foreign investors, investors moving money out of bond funds and into stocks, short-covering--in which investors gamble that the market will decline--and plain old investor enthusiasm.
Among the strongest gainers were the stocks of companies engaged in the forest products, airline, drug and technology businesses. Stone Container rose 2 to 74 and Southwest Forest Industries climbed 7 1/2 to 31.
Takeover candidate Piedmont Aviation rose 8 1/2 a share to 58 and Delta Air Lines, after its stock received strong recommendations from some analysts, rose 2 to 57.
Among the drug companies, Merck’s stock rose 2 5/8 to 136 5/8 after reporting a 31% increase in fourth-quarter earnings, Carter-Wallace rose 6 to 102 and Squibb gained 3 1/8 a share to close at 126 3/8.
Among technology issues, International Business Machines gained 2 1/8 a share to close at 129 1/2 and Digital Equipment rose 2 to 146 3/8.
Among tax-exempt municipal bonds, general obligation bonds were down point and revenue bonds rose 1/8 point in light trading.
The federal funds rate was 6.0625%, down from 6.5% late Monday.
