Dow Tops Level It Opened at on Day of Crash
The stock market’s comeback carried Wall Street past a major milestone Tuesday, as the Dow Jones industrial index closed above where it stood before the historic Black Monday collapse and set yet another post-crash high.
As trading ended, the closely watched Dow stood at 2,256.43, a shade higher than its opening level of 2,247.39 on Oct. 19, 1987, when the Dow plunged 508 points. The Dow rose 38.04 points Tuesday, its biggest one-day advance since last Oct. 20.
Market analysts say the post-crash recovery is being led by institutional investors that are putting money into large blue chip companies, such as IBM. The small investors who fled the market after Black Monday, however, appear to be staying away from the stock market.
The Dow’s new post-crash high cheered technical analysts who watch the stock market index for clues about where the market is headed. The breaking of the Black Monday barrier confirms for some the strength of the market’s recovery.
For others on Wall Street, the passing of the Black Monday barrier was little more than a historical footnote that contributed only in a small way to the air of optimism that seemed to sweep the stock market in recent weeks.
The reasons for the recovery have been unclear to Wall Street professionals, and opinions vary widely on how long the rally will continue. Some market watchers noted that the rally wasn’t likely to strengthen until individual investors returned to the market.
Many small investors are still skittish, with the crash of 15 months ago fresh in their memories, analysts say.
Investors Want Proof
One analyst, Eric Miller of Donaldson Lufkin & Jenrette, said individual investors won’t return to the market until they are sure the economy is healthy. Miller predicted that interest rates would have to decline by 1 1/2 percentage points to remove inflationary fears and to persuade individuals that the economy is in good shape.
“It is a show-me market,” said A. Marshall Acuff Jr., a market analyst with Smith Barney, Harris Upham & Co. in New York. “Small investors want proof that a recovery is under way.”
Analysts attributed the recovery to everything from economic forecasts to Wall Street superstition. Michael Metz, an analyst with Oppenheimer & Co. in New York, said some investors were encouraged by remarks made Tuesday by Federal Reserve Board Chairman Alan Greenspan. Greenspan told the House Banking Committee that he wants to keep a lid on interest rates.
Greenspan disputed the notion that inflation in the current 4% to 4 1/2% range is acceptable to the Fed and said the central bank is aiming for price stability. His remarks also helped spark a rally in the bond market. The benchmark 30-year Treasury bond gained more than half a point, depressing its yield to 8.78% from 8.85%.
Mystical Explanations
Other news Tuesday also was thought to cheer investors. Market analysts said investors were buoyed by Treasury Secretary Nicholas F. Brady’s comment that the Bush Administration might change taxes on dividends in a way that would benefit investors.
Other explanations for the market’s rally were more mystical. One analyst playfully suggested that this is the beginning of the so-called January Effect. Wall Street lore has it that if the market gains in January, it will gain for the year. “I would say we’re having a January Effect right now,” said Smith Barney’s Acuff.
Other analysts suggested that investors might owe the market’s rally to Sunday’s Super Bowl victory by the San Francisco 49ers. That is because yet another theory holds that the market rises in years when a team from the National Football Conference wins the professional football championship.
“Even if you’re from L.A., you have to give some credit to San Francisco,” said Miller of Donaldson Lufkin & Jenrette in New York.
Analysts differed on how high the market’s recovery might go. They note that the Dow is still far below the all-time high of 2,722.42 that it reached on Aug. 25, 1987.
Acuff of Smith Barney predicted that the Dow “could surprise most people” and hit 2,700 this year if investors who left the market after the crash return. He said, however, that “the prevailing sentiment now is still caution.”
Other analysts were less optimistic and said certain events could dampen the market’s rally. Miller, the Donaldson Lufkin & Jenrette analyst, said a fight over the federal budget in February and the specter of higher interest rates or increased taxes could thwart the market’s comeback.
Cyclical Stocks Rising
Market analysts said certain groups of stocks seemed to be leading the comeback. They said investors are putting money into cyclical stocks, the shares of companies whose fortunes tend to rise and fall with the business cycle. For example, shares in chemical, paper and metal manufacturers have gained since the beginning of the year.
Oppenheimer’s Metz said cyclical stocks have been selling at prices below their true value because of fears about the economy. But now, he said, investors seem to be turning to these stocks as worries about inflation and the budget deficit have cooled--at least for now.
Metz said some companies whose shares seem to be leading the rally are Dow Chemical Co., International Paper Co., Bethlehem Steel Corp. and Du Pont. He said airline stocks have risen, but he said those gains were because of takeover speculation.
In Tuesday’s trading on the New York Stock Exchange, rising issues outpaced declines 1,016 to 466 in heavy trading of 189.6 million shares. The most actively traded issue on the NYSE was Los Angeles-based Security Pacific, which was up 5/8 to close at 37.
Merck rose 1 1/4 to 61 7/8 after posting an upbeat fourth-quarter earnings report. GAF rose 1 1/4 to 50 1/2. The company scheduled a Feb. 22 annual meeting at which shareholders will vote on the proposed $53-a-share cash and securities buyout led by Samuel J. Heyman, the firm’s chairman and chief executive.
Among other gainers, IBM rose 1 7/8 to 124 1/4 and General Motors rose 1 1/8 to 89 1/2. As measured by Wilshire Associates’ index of more than 5,000 actively traded stocks, the market rose $29.931 billion, or 1.07%, in value.
Foreign Markets Climb
The NYSE’s composite index of all its listed common stocks rose 1.86 to 161.99.
Standard & Poor’s industrial index rose 4.43 to 333.26; its 500-stock composite index was up 3.99 to 288.49.
The NASDAQ composite index rose 2.00 to 391.99; the American Stock Exchange market-value index closed at 318.74, up 0.71.
In Tokyo, share prices rose to a record close amid easing fears of inflation and higher interest rates because of lower oil prices and a higher yen.
The Nikkei index rose 224.80, or 0.72%, to close at 31,557.68. The previous record close--31,354.55--was set last Wednesday.
Share prices rallied in late trading on the London Stock Exchange to close at the day’s best level and to set yet another post-crash record high. The Financial Times-Stock Exchange 100-share index closed up 16.4, or 0.9%, at 1,941.1.
THE DOW BATTLES BACK
The Dow Jones industrial average closed Tuesday above its Black Monday opening for the first time.
Aug. 25, 1987--Dow closes at record 2,722.42.
Oct. 19, 1987--Dow opens at 2,247.39 and promptly crashes 508 points.
Oct. 19, 1987--Dow closes at 1,738.74, the worst day in stock market history.
Jan. 24, 1989--Dow closes at 2,256.43, regaining its pre-crash level of Oct. 16 for the first time.
