Dow Leaps 48.36; Confidence Fires Heavy Trading : Volume on Big Board Is Sixth-Highest Ever
Declining commodity prices and growing investor confidence helped ignite the stock market Wednesday and lifted the Dow Jones industrial index 48.36 points, nearly to a new post-crash high.
The Dow closed at 2,102.95, eight points shy of the April 12 closing of 2,110.08 that was the Dow’s peak since the October market collapse. The surge came on New York Stock Exchange trading volume of 310.03 million shares, its heaviest of the year and sixth-heaviest ever.
Analysts cited growing confidence that interest rates and inflation will not rise, as well as a reversal in the commodity prices that have moved steadily upward for the past week and a half on fears of a Midwestern drought. Prices began to recede Wednesday as rain was forecast for the Midwest. And as commodity prices retreated, bond and stock prices rallied.
The stock market’s advance meant the Dow has risen about 162 points since turning upward May 24.
“I don’t think anyone’s expecting a new bull market, but this sure feels good,” said Andrew Riley, market strategist with the Yamaichi International investment firm in New York.
‘Solid Market Performance’
Trading volume was stoked by so-called dividend capture plays, in which investors purchase the shares of utilities and other high-dividend-bearing stocks just long enough to be paid their dividends. About 97.9 million shares of Big Board trading was in Pacific Gas & Electric, making it the largest daily volume for a single stock this year. PG&E; stock, which carries a 12% dividend yield, closed higher at 16.
Even excluding dividend plays, “this was a very solid market performance,” said Yamaichi’s Riley. “Lately we’ve been getting excited about 150 million share days.”
The stock market drifted downward through most of April and May as signs of a strong economy brought expectations that inflation would increase and the Federal Reserve Board would feel constrained to lift interest rates to limit inflation. In recent days, however, the market has gained increasing confidence that the Federal Reserve has no intention of raising the discount rate, which is the interest rate that the Fed charges for loans to member banks.
“There’s growing confidence that rates are not going higher now, before a presidential election,” said Thom R. Brown, chairman of the investment policy committee of Butcher & Singer, a Philadelphia investment firm.
The dollar has firmed, too, easing worries that the Fed will feel compelled to raise rates to keep the currency from deteriorating in foreign exchange.
Also undergirding the market’s strength were the effects of the recent deep pessimism of many investment managers. This pessimism has meant that managers have huge reserves of cash that have not been invested but can be poured into the stock market when rallies begin, analysts observed.
The Dow stood only two points from setting a high in the last hour of trading Wednesday but then receded. The index did, however, cross the 50-point mark during the session, thereby kicking off the New York Stock Exchange’s limits on the use of its automated order delivery system for program trading.
But the restrictions didn’t stop a surge of computer-directed program trading in the final moments of the day, analysts said.
The market will face a key economic indicator Friday when the government releases the monthly producer price index figure that is closely watched as a sign of impending inflation. The consensus of analysts believes that the index will show a monthly rise of about 0.5%, which represents relatively mild inflation.
The broader stock market indexes also posted large advances on Wednesday. Standard & Poor’s 500-stock index climbed 6.35 to 271.52, while the New York Stock Exchange composite index gained 3.19 to 152.87. There were 1,306 advancing issues on the Big Board, compared to 300 decliners, and 389 issues were unchanged.
The dividend seekers were also drawn to Chemical Bank, which carries an 8.5% dividend yield. It finished at 31 1/2, up 1/8, on Big Board composite volume of 7.65 million shares.
Among other issues, International Business Machines Corp. gained 2 7/8 to 116 5/8. IBM said it agreed to sell a unit, Science Research Associates, to Maxwell Communications of Britain for $150 million.
Goodyear Tire & Rubber was up 1 7/8 to 66 1/8, International Paper moved ahead 1 5/8 to 45 1/8, Philip Morris advanced 2 5/8 to 86 1/2 and Eastman Kodak was up 1 to 44 7/8.
Murray Ohio Manufacturing, which Tuesday rejected a $52-a-share takeover offer from Electrolux AB of Sweden, added 1 3/8 to 63 7/8. Murray Ohio said it has begun talks with “a number” of parties about a possible sale or recapitalization.
Salomon Inc. advanced 1 to 22 7/8 as the company’s board authorized the repurchase of up to 8 million common shares and named Donald S. Howard its chief financial officer.
Syntex, up 1 1/8 Tuesday on speculation that F. Hoffmann-LaRoche of Switzerland might be interested in the company, moved up another 2 1/8 to 41 5/8 on volume of 2.02 million shares. The companies have declined to comment on the rumors.
At the Tokyo Stock Exchange, the Nikkei index closed at 27,912.65, down 54.67.
In London, the Financial Times 100-share index rose 8 points to close at 1,828.2, its highest level for the session.
