Wall Street’s blue chip index jumped more than 40 points Thursday to its highest level since the October, 1987, crash, only one day after the first anniversary of Black Monday.
Renewed takeover fever and lower oil prices--evidence of reduced inflation--provided two strong reasons to buy stocks.
The Dow Jones average of 30 industrials, which had fallen 22.58 on Wednesday, jumped 43.92 to 2,181.19. That surpassed the previous 1988 closing high of 2,159.85 reached Tuesday.
Advancing issues outnumbered declines by about 5 to 2 in nationwide trading on the New York Stock Exchange, with Big Board volume rising to 189.58 million shares from Wednesday’s 186.35 million.
News that a group of RJR Nabisco Inc. managers wants to buy the company for an estimated $17 billion, which would be the largest corporate buyout in history, sparked buying enthusiasm.
RJR Is Biggest Gainer
“Takeover fever is so high that, despite a drop in the price of oil, the oil index is up,” said Don Vialouk at Richardson Greenshields of Canada Ltd.
Market analyst Donald Kimsey at Dean Witter Reynolds called the rise “an extension of the advance since the latter part of August.”
RJR Nabisco said a group of its top managers, including Chief Executive F. Ross Johnson, “intend to seek to develop, with a financial partner” a proposal for a leveraged buyout at about $75 per share.
The RJR announcement follows another huge deal involving archrival Philip Morris Cos., which launched an unsolicited $11.5-billion offer for Kraft Inc. on Monday.
RJR Nabisco was the biggest percentage gainer on the NYSE, jumping 21 1/8 to 77. Philip Morris, another active issue and a Dow index component, rose 5 to 99, partly in sympathy with RJR Nabisco, an arbitrager said.
Oil prices ended down 80 cents a barrel in the November futures contract just as eight key OPEC ministers met in Madrid in hopes of finding a way to turn the sagging market around.
The market was unsettled Wednesday by rising interest rates and a rumor that a major newspaper was about to publish a story potentially harmful to the presidential campaign of Vice President George Bush. The rumor was quickly denied, however.
At the same time, market participants were looking ahead to today’s scheduled report from the government on the consumer price index for September.
Any sign of new upward pressure on inflation would increase expectations of further credit tightening by the Federal Reserve, but concern on that score seemed to ebb Thursday.
Mark Tavel, president of Valueline Asset Management, cautioned that gains made in a market solely driven by takeover fever may prove short-lived. “The conventional view is that a market driven by takeovers is a market that can quickly fall apart if interest rates kick up or the threat of prohibitive legislation should rear its head.”
But, recognizing the generous premiums offered for some recent takeover stocks, he added: “Right now there don’t seem to be many losers.”
American Telephone & Telegraph rose 5/8 to 27 1/2 in active trading. The company reported third-quarter earnings of 55 cents a share, up from 47 cents in the comparable period last year.
Other gainers among the blue chips included Exxon, up 7/8 at 45 1/2; International Business Machines, up 2 1/2 at 124 7/8; General Electric, up 7/8 at 45, and Union Carbide, up 1 3/4 at 27.
Pittston picked up 1 to 15 3/4 on higher quarterly profits.
Quantum, which said it planned to buy back 2 million shares through a tender offer, gained 1 3/8 to 13 5/8 in the over-the-counter market.
Sun Microsystems Gains
Gillette, once again rumored as a takeover candidate, rose 2 to 38 3/4 in active trading. GAF jumped 2 to 49 following news that its board approved an enhanced management buyout valued at $53 a share.
Analysts said shares of Sun Microsystems Inc. rose 2 to 32 7/8 in heavy trading as investors covered short positions and anticipated a strong earnings report from the company. After the stock market closed, Sun said it earned $20.6 million in the first fiscal quarter, up from $12.9 million a year ago.
Shares of Caterpillar Inc. rose 2 1/2 to 61 after the company reported that it earned a record $190 million in the third quarter, easily exceeding last year’s $146 million.
Shares of Texas Eastern, which operates a big natural gas pipeline system, rose 2 to 29 3/8 on recurring rumors of a takeover or restructuring, which analysts greeted with skepticism.
The NYSE’s composite index of all its listed common stocks added 2.83 to 159.01.
Standard & Poor’s industrial index rose 7.26 to 326.07, and S&P;'s 500-stock composite index was up 5.91 to 282.88.
The NASDAQ composite index gained 2.86 to 388.62; the American Stock Exchange index closed at 306.37, up 1.89.
In foreign trading, the Nikkei 225-share index closed at 27,390.55, up 96.88, on the Tokyo Stock Exchange on Thursday.
Share prices finished an uneven session on the London Stock Exchange slightly higher Thursday after a late afternoon rally. The Financial Times 100-share index closed 1.8 points higher at 1,864.3, its best level for the day.