Stocks Join Bond, Dollar Rallies; Dow Gains 26.78
Stocks rose for the second straight day Thursday after a week of declines, and traders attributed the reversal to a strengthened dollar, improved bond market and speculation that the trade deficit may have narrowed.
But they also said the relatively light trading volume suggested that many investors were reluctant to participate without knowing the July trade deficit figure, which the Commerce Department was due to report today. The Dow Jones average of 30 industrial stocks, which had been down more than 173 points from its record high of 2,722.42 set Aug. 25, advanced 26.78 to 2,576.05, a more substantial increase than the indicator’s 4.15 gain on Wednesday. Broader measurements of stock prices also rose.
Encourage Investments
The market focused on the trade number because a bigger deficit would suggest that the dollar will fall further, incite inflation, cause interest rates to rise sharply and discourage investors from buying stocks and bonds.
Conversely, a smaller deficit would help stabilize the dollar and encourage investments in U.S. securities.
In the bond market, the Treasury’s key 30-year bond rose 1/2 point, or $5 for every $1,000 in face amount. Its yield fell to 9.57% from 9.62% Wednesday.
Wall Street rallied early in the session, following the behavior of the dollar and bond markets on the news that Japan’s August trade surplus had narrowed significantly from a year earlier.
“I think the stock market was looking for a reason to have a nice technical bounce, but there still is a lot of cautiousness,” said Philip C. Puccio, senior vice president and manager of institutional trading at Dillon, Read & Co. in New York.
“I would say that people were picking their stocks, but really not making big commitments,” he said. “I think it’s going to be precipitated by what we see Friday.”
Nobody’s Trusting Rally
Lawrence R. Helfand, manager of retail sales at Rodman & Renshaw Inc. in Chicago, said that stocks have been extremely oversold since late August and that it was premature to call the Thursday improvement the start of a prolonged rise.
The modest market volume, he said, “suggests to me that nobody’s trusting this rally. But if bonds continue their rally Friday, I think you’ll see the volume come in.”
In New York Stock Exchange composite trading, advancing issues outnumbered declines 11 to 5. NYSE volume totaled 179.79 million shares, compared to 164.91 million the previous session.
Among the most notable blue-chip gainers, Philip Morris rose 4 to 115, Alcoa rose 1 1/8 to 59 3/8, Kodak rose 1 3/8 to 99 3/4 and USX rose 3/4 to 35 3/4.
Drug, chemical and technology stocks did particularly well. Eli Lilly rose 2 1/8 to 94, Warner Lambert rose 3 1/8 to 81 1/2, Dow Chemical advanced 3 3/8 to 100, Digital jumped 7 to 189, Hewlett-Packard rose 1 3/8 to 65 3/8 and National Semiconductor rose 7/8 to 17 3/8.
The most active NYSE issue was First City Bancorp of Texas, which fell 5/8 to 1 on 2.6 million shares. On Wednesday, the Federal Deposit Insurance Corp. announced a $970-million plan to rescue the troubled banking company.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 208.36 million shares.
The NYSE composite index measuring all listed issues rose 1.67 to 177.46.
The Wilshire index of 5,000 equities closed at 3,127.500, up 30.941 or 1.00%.
Standard & Poor’s index of 400 industrials rose 4.38 to 371.10, and S&P;’s 500-stock composite index rose 3.21 to 317.13.
At the American Stock Exchange, the market-value index rose 3.93 to 351.48. The NASDAQ composite index for the over-the-counter market closed at 443.48, up 4.29.
In the secondary market for Treasury bonds, prices of short-term governments rose 3/32 point, intermediate maturities rose 3/16 point and 20-year issues were up 5/16 point, according to Salomon Bros.
In corporate trading, industrials and utilities rose 5/8 point in active trading, Salomon Bros. said.
Among tax-exempt municipal bonds, general obligations and revenue bonds rose point in moderate dealings, Salomon Bros. said.
Yields on three-month Treasury bills fell 6 basis points to 6.35%. Six-month bills fell 30 basis points to 6.37% and one-year bills were off 6 basis points at 7.11%.
The federal funds rate, the interest on overnight loans between banks, traded at 7.125%, down from 7.75% late Wednesday.
