Dow Gains 37.34 on Bargain Hunting, Trade Deficit News
Stock prices surged Wednesday, bouncing back from levels last seen nearly three months ago in a rally that gathered momentum toward the finish. Trading volume, however, remained sluggish.
Analysts said the market had been due for a rebound after this month’s steady decline. But they said some encouraging news on the trade deficit and some bargain hunting also contributed to the rally.
The Dow Jones index of 30 industrials, which slipped 0.89 on Tuesday and fell nearly 38 points in the past three sessions, climbed 37.34 points to close at 2,026.67, its biggest gain in nearly a month. Tuesday’s close had left the market’s best known indicator at its lowest level since late May.
Advancing issues outnumbered declines by about 5-to-2 in nationwide trading of New York Stock Exchange-listed stocks, with 1,089 issues up, 376 down and 498 unchanged. The NYSE index rose 1.99 to 147.93.
Volume on the floor of the NYSE came to 127.80 million shares, up from 119.54 million in the previous session. Nationwide, consolidated volume in NYSE-listed issues, including trading at regional exchanges and on the over-the-counter market, totaled 151.27 million shares.
12-Point Surge
Prices rose smartly for the first hour of trading, pulled back somewhat at midday and then extended their gains during the early afternoon. A 12-point spurt in the final hour of trading lifted the Dow Jones industrial average to its biggest gain since a 46.40 rise on July 29.
Jack Solomon, an analyst for Bear Stearns & Co., said a combination of factors helped lift prices.
He said this month’s decline had soured the market’s mood, and Wednesday’s activity reflected “a release from excessively consistent selling pressure.”
He said some investors may have found some bargains at their depressed levels, while professional traders who had previously sold borrowed stocks, expecting prices to fall, decided to buy stocks.
Solomon said the stock rally may have also reflected a delayed reaction to Tuesday’s government reports that consumer prices were up modestly in July while orders for durable goods tumbled.
Slow Trading
He said a new government report that the nation’s trade deficit narrowed in the second quarter to $29.9 billion from an imbalance of $35.2 billion in the first three months of the year may also have provided some encouragement.
All three reports were seen as reducing pressure on the Federal Reserve to push interest rates higher, he said.
“If we get some good political or economic news, this rally may continue. We may have broken the backbone of the decline,” Solomon said.
But other analysts noted that the gains came in continued slow trading and were skeptical about prospects for further gains.
Wickes was the most actively-traded stock on the NYSE, slipping 1/8 to 13. Its management has proposed a leveraged buyout at $12 a share.
Auto Issues Advance
International Business Machines was the second most active issue, climbing 1 7/8 to 112 3/4. Other point-plus gainers included Boeing, up 2 1/8 to 58 3/4; Dow Chemical, up 1 3/4 to 83, and Philip Morris, up 2 to 91 3/4.
The automobile stocks rose despite reporting lower sales in mid-August, compared to a year earlier. Ford Motor rose 1 5/8 to 49, General Motors rose 3/4 to 73 and Chrysler was up 3/8 at 22 3/8.
Some airline issues were strong gainers. UAL, parent of United Airlines, jumped 2 3/8 to 90 1/8, while AMR Corp. rose 1 3/8 to 43, Delta Airlines was up 3/4 to 46 3/4 and NWA Inc. rose 3/4 to 43 3/8.
Large blocks of 10,000 or more shares traded on the NYSE totaled 2,739, compared to 2,491 on Tuesday.
Tokyo Down
The Wilshire index of 5,000 equities closed at 2,606.225, up 32.371 or 1.26% from the preceding trading day.
Standard & Poor’s industrial index rose 4.91 to 299.50, and S&P;’s 500-stock composite index was up 4.04 at 261.13.
At the American Stock Exchange, the market value index rose 2.06 to 294.06. The NASDAQ composite index for the over-the-counter market closed at 376.03, up 2.50.
Prices on the Tokyo Stock Exchange fell sharply in moderate trading Wednesday, reflecting discouragement about the enactment of the U.S. trade reform bill.
The Nikkei average of 225 selected issues, which lost 159.23 points Tuesday, shed another 120.28 points to close at 27,799.67.
Stock prices in London edged slightly higher. The Financial Times 100-stock index, which fell 14.4 points Tuesday, gained 1.3 points higher to 1819.2.
