Stocks Rally on Trade Report; Dow Up 17.60 : Jump in Oil Prices Puts Slight Damper on Gains
Blue chip stocks rallied Wednesday to their best levels since early August after the government said the July trade deficit narrowed to $9.53 billion, the smallest shortfall in more than three years.
The Dow Jones industrial index rose 17.60 points to close at 2,100.64 after holding back for much of the session.
Share prices initially surged on the trade report, but a steep rise in world oil prices revived the market’s inflation worries and knocked stocks from their highs.
The blue chips, however, rallied in the last hour of trading to breach the 2,100 level.
“The market has had a tremendous amount of good news--we had the big drop in crude oil prices (before Wednesday), a big bond market rally, a big pre-Labor Day stock market rally--the trade report is just a culmination of all that,” said Jon Groveman, head trader at Ladenburg Thalmann & Co.
The Commerce Department said the July deficit shrank to $9.53 billion from a revised $13.22 billion the previous month. Wall Street had expected an $11.2-billion shortfall for July.
Of particular note, brokers said, was a substantial drop in imports. That was taken as a sign that the momentum of the domestic economy was slowing in response to recent credit-tightening by the Federal Reserve.
A moderation of economic growth would presumably allow the Fed to pursue a less restrictive credit policy, encouraging steady to lower interest rates.
Held Onto Gains
Michael Metz, a market strategist with Oppenheimer & Co., said he noted a shift in demand from rumor-driven, or “whisper” stocks to “real investment-grade” issues, suggesting a revival of buying on the part of institutions.
Although the surge in oil prices wrecked the rally in the U.S. bond market, which is highly sensitive to inflation, the stock market was able to hold its gains.
“Oil prices around $14, $15 and $16 a barrel are just fine, but if it goes to $20 a barrel, we might have a problem,” Metz said.
Advancing issues outnumbered declines by nearly 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with Big Board volume rising to 177.22 million shares from Tuesday’s 162.49 million.
The dollar rose in foreign exchange following the trade report, and interest rates fell in the credit markets.
Among actively traded blue chips, Philip Morris rose 1/2 to 97, General Motors added 5/8 to 75 and American Telephone & Telegraph was up 3/8 at 25 1/2. International Business Machines dropped 3/8 to 114 5/8.
TW Services climbed 1 5/8 to 22 in continued speculation about takeover possibilities following the sale Tuesday of a 14.9% stake in the company by a group led by investor Ronald O. Perelman.
Oil issues were broadly higher as prices of energy futures jumped on fears of supply disruptions that might be caused by Hurricane Gilbert.
Foreign Markets Rise
Exxon gained 3/8 to 45, Chevron rose 1 to 44 3/4, Mobil added 1 to 43 7/8, Atlantic Richfield climbed 1 1/8 to 81 5/8, Amoco gained 1 3/8 to 74 5/8 and Phillips Petroleum edged up 1/2 to 18 1/8.
The Wilshire index of 5,000 equities closed at 2,679.018, up 15.422.
In foreign trading, share prices closed mixed on the Tokyo Stock Exchange after fluctuating in a narrow range throughout the day in active volume.
The Nikkei 225-share index rose 11.51 points to 27,805.67.
In London, share prices finished higher on the London Stock Exchange as the market shrugged off the report of a narrowing of the U.S. trade deficit in July.
The Financial Times 100-share index rose 8.8 points to 1,765.1.
