Roused from its late-1987 doldrums by the dollar's abrupt rebound, the stock market on Monday began the new year with an explosive rally that propelled the Dow Jones industrial average to its fourth-largest daily point gain on record.
The closely watched index of blue-chip stocks romped to a 76.42-point gain, a 3.9% increase, to close the first trading session of 1988 at 2,015.25. The gain more than erased last week's 61-point Dow loss.
Monday's was a broad-based rally that analysts said was marred only by the relatively light trading volume. Only 181.81 million shares changed hands on the New York Stock Exchange, considerably less than the 250 million shares that analysts have come to expect on such heady days.
The rally started at the opening bell and gained steam throughout the day as impatient investors took heart from the dollar's unexpected strength in foreign exchange markets and an assortment of other encouraging news and flocked in from the sidelines.
The Dow sped to a 55-point gain in the first hour of trading and held its ground in that neighborhood until mid-afternoon--a pattern mirrored by other, broader market measures. Then began a surge that drove the Dow up as high as 81.75 points just five minutes before the end of trading.
All broader market measures also registered sharp gains, and advancing stocks routed declining issues on the New York Stock Exchange by a ratio of nearly 8 to 1.
The firming dollar was the key to Monday's market performance, analysts said, although it was not the only factor.
After more than a week of steady losses in the U.S. currency's value in foreign exchange markets, the downward cascade was abruptly reversed early Monday after the Federal Reserve Board and the central banks of West Germany and Japan intervened aggressively by buying dollars. Then elated currency traders began buying dollars, and, as their value surged, stock market investors rushed to buy stocks.
"For the first time in several weeks, there is a belief that the Fed . . . has finally decided to do something meaningful to support the dollar," said Trude Latimer, a market strategist for the New York investment firm of Josephthal & Co. "That is an incredible psychological boost for the stock market."
Not even a midday reversal in the dollar's surge--triggered by a report quoting an unnamed Fed official as saying he doubts that the dollar has hit bottom--succeeded in squelching the stock market rally.
"As we say at the (horse-racing) track, this market has 'late foot'; it is proving remarkably resilient in the stretch," said Michael Metz, a market strategist with the Oppenheimer & Co. investment firm.
Further aiding the buying momentum, analysts said, was news that overnight stock prices in Japan declined less than expected, that a small St. Louis bank regarded as an interest rate trend setter cut its prime rate and that corporate purchases in December were stronger than expected.
Japan's stock market had been closed for a week, and there was considerable concern in world financial markets that Japanese investors, with a week's worth of pent-up pessimism over the sliding dollar, would plunge the Tokyo stock market into chaos reminiscent of last October's worldwide stock market crash.
The relatively small 346.96-point decline in the 225-stock Nikkei index heartened U.S. investors, analysts said. The index closed at 21,217.04 for a 1.6% decline.
Likewise, analysts said the decision by Southwest Bank of St. Louis to lower its prime lending rate to 8.5% from 8.75%--while not immediately followed by any major bank--lifted investors' spirits, as did the findings of a monthly survey of corporate purchasing executives. The survey found evidence that economic growth set a "much brisker" pace in December than it did the month before--despite the Oct. 19 stock market crash.
Once the Dow hit the 2,000 level in mid-afternoon, "all of that institutional cash waiting on the sidelines . . . just couldn't resist anymore, and investors paid any price to get in on the action," said Alfred E. Goldman, a market strategist with A. G. Edwards & Sons in St. Louis.
Investors were primed to buy stocks for several reasons. Year-end stock selling for tax-reduction purposes is over for another year; many individual investors are cash-rich from year-end bonuses, and this is the time of year when mutual funds and pension funds reinvest their cash reserves into the stock market.
Energy, Technology Gain
Although Monday's rally extended to virtually every sector, energy and technology stocks were among the biggest winners
Among the computer makers, International Business Machines rose $5.25 to $120.75, and Digital Equipment gained $6 to close at $141.
Aided by higher crude oil futures prices, Chevron rose $2 to $41.625, Atlantic Richfield gained $3.75 to $72.75 and Occidental Petroleum added $1.375 to close at $25.75.
Among broad market measures, the NYSE composite index gained 4.67 to 142.90. The American Stock Exchange market value index closed at 266.74, up 6.39, and the NASDAQ composite index for the over-the-counter market rose 8.01 to 338.48.
Although the rally was broad, analysts were divided about its longevity.
"The January barometer says if the first five days (of a new year) are up, all of January will be up and the whole year will be positive," said Prudential Bache analyst Hildegard Zagorski. "I'm looking for a 2,400 Dow by June."
But Metz said he is somewhat troubled by Monday's light trading, and Goldman said he is concerned that "this market got so excited so quickly." Eugene D. Peroni, an analyst for the Philadelphia investment firm Janney Montgomery Scott, predicted that Monday's showing is a precursor of "some very volatile movements just ahead."