Dow at Record High After Best Gain in History
The stock market soared Tuesday, with the Dow Jones industrial average scoring its greatest one-day gain in history and reaching a record high, as cash-rich institutional investors virtually ignored the latest insider-trading arrests and continued to buy.
The average of 30 industrial stocks jumped 54.14 points to close at 2,237.49, its second close ever above 2,200. The previous high of 2,201.49 was set on Feb. 5.
Tuesday’s gain topped the previous record one-day rise of 51.60 points, set on Jan. 22. On a percentage basis, the new record gain was about 2.5%. Since the beginning of the year, the widely followed Dow index has gained 341.54 points, about 18%.
Other Averages Up
Broader market averages also hit record highs, as advancing stock issues outnumbered those that declined by 1,130 to 502 on the New York Stock Exchange, where 187.82 million shares were traded, compared with Friday’s 184.38 million. The market was closed Monday for Presidents’ Day.
The arrests since Thursday of five Wall Street executives on insider-trading charges had virtually no impact on the market, analysts said. Investors, they said, had been expecting more arrests ever since it was announced last Nov. 14 that prominent stock speculator Ivan F. Boesky had agreed to pay $100 million to settle insider-trading charges.
The Dow average, which lost more than 56 points in the two days after the news of Boesky’s settlement, lost less than seven points last Thursday, the first day of the latest round of arrests. It then turned up 17.57 points on Friday.
“Boesky was a shock,” said Monte J. Gordon, director of research at the investment firm of Dreyfus Corp. “But now the surprise level is lower.”
“The market is pretty much discounting (the new arrests) and is coming to grips (with the fact) that there are other insider traders out there,” said Eugene E. Peroni Jr., director of technical research for the Philadelphia-based brokerage of Janney Montgomery Scott.
Tuesday’s buying fever was attributed to many of the same factors that have fueled the market rally so far in 1987: expectations of a stronger economy and continued strong buying by cash-rich foreign investors and U.S. institutions, such as pension funds. The spending spree occurred despite a lower dollar and weak bond market on Tuesday.
“A lot of institutions do have cash and are not fully invested,” said Michael H. Sherman, chairman of investment policy at Shearson Lehman Bros. Many of those institutions are worried that they have not fully participated in the current market rally and are discouraged by low returns on other investments such as Treasury bills and certificates of deposit, analysts said.
Computerized Buying
Traders noted also that many individual investors are back in the market, as evidenced by strong showings in the more speculative over-the-counter stocks that individuals tend to favor. Tuesday’s gain was also attributed to computerized futures-related buying programs by institutions.
Stocks were also spurred Tuesday by “a perception that things in the economy are getting better and are not as bad as previously thought,” analyst Gordon said, citing recent statistics showing healthier industrial production and factory utilization rates.
Although the better than 2-1 ratio of gainers over losers on the New York Stock Exchange indicated broad participation in Tuesday’s spending spree, the greatest strength was enjoyed by big blue-chip stocks and stocks of firms expected to gain most from a stronger economy, such as paper, chemical, computer and machinery concerns.
Analysts disagreed, however, on how long the current rally can go before a downturn. Tuesday’s volume of 187 million shares, relatively low compared to the 200-million-share-plus days that have become increasingly frequent in the last year, was seen as bullish by some.
‘Not Panic Buying’
“This is a good sign in the sense that it shows there was not panic buying,” said Al Frank, publisher of The Prudent Speculator, an investment newsletter published in Santa Monica.
But George K. Dorian, technical analyst with Wedbush Securities Inc. of Los Angeles, said the market is overvalued and could drop at least 100 points soon. However, “long-term conditions are still very positive,” Dorian said.
Among individual issues, Texaco was the most active on the New York Stock Exchange, closing at $33.50, down $2. The oil giant lost another round in its multibillion-dollar court fight with Pennzoil last week.
RJR Nabisco rose $3.125, to $62.875, after saying it might spin off its tobacco group. Piedmont Aviation was up $6.25, to $65.375, after reporting a takeover offer by Norfolk Southern at $65 a share. Ford Motor Co. was up $2.375, to $78.50.
Drug Stocks Gain
Among drug stocks, Baxter Travenol Laboratories was up 62.5 cents, to $26. Pfizer rose $5.75, to $76.50, and SmithKline Beckman gained $3.375, to $107.75.
Paper industry gainers included International Paper, up $2.875 to $96. Boise Cascade gained $1.875, to $79.375, and Weyerhaeuser gained $1, to $48.50. Computer gainers included IBM, up $3.875 to $138.375; Digital Equipment, up $4.25 to $155.75, and Texas Instruments, up $4.375 to $157.625.
Broad-market indexes setting new highs Tuesday included the New York Stock Exchange composite index, which rose 2.92 to 162.48, surpassing its former high of 160.36, set Feb. 5, and Standard & Poor’s 500-stock index, which climbed 5.79 to 285.49, exceeding its previous record level of 281.16, also set Feb. 5.
The American Stock Exchange index rose 3.02 to a record high of 319.25. The National Assn. of Securities Dealers’ index of over-the-counter stocks jumped 5.70 to a record 418.18.
Transportations Soar
The Dow transportation index, fueled by the rise in Piedmont Aviation, soared 26.04 to close at 948.40, topping its former high of 917.39. The Dow’s utility index lagged, rising only a slight 0.17, to 220.92. Its record high is 227.49.
Bond prices moved lower in light trading Tuesday, depressed by further rises in short-term interest rates and weakness in the dollar. But the market ended the day well above the lows reached early in the session.
The bellwether 30-year Treasury issue, off about three-quarters of a point at mid-day, finished down one-quarter of a point, or about $2.50 per $1,000 in face amount. Its yield rose to 7.61% from 7.57% late Friday.
