Stocks Rally on Capital Gains Talk; Dow Rises 31 in Heavy Trading
A rally fueled by President Bush’s support of a lower capital gains tax helped the stock market cap off a week of big gains with another strong advance Friday in the heaviest trading in seven months.
In addition, analysts said investors, especially professional money managers, continued to scramble after stocks to get aboard an unexpectedly sharp and durable rally dating back to late November.
The Dow Jones index of 30 industrials climbed 31.79 to 2,322.86, bringing its gain for the week to 87.50 points.
Advancing issues outnumbered declines by nearly 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks.
Volume on the floor of the Big Board reached 254.87 million shares, up from 212.25 million on Thursday and the heaviest total since a 264.41-million-share day last June 27.
Traders said Bush’s statement at a news conference that he favored a cut in the capital gains tax gave a healthy boost to an already strong market. A reduction in the tax on profits would be sure to heighten public interest in equities.
Bush also said Washington should not dictate the level of corporate debt. The remark eased concerns that the government would curb leveraged buyouts, which have galvanized the market in the relatively quiet period since the 1987 crash, market analysts said.
Before the market opened, the Commerce Department estimated that the U.S. gross national product grew at an annual rate of 2%, after adjustment for inflation, in the fourth quarter of last year.
The figure came in below most advance estimates on Wall Street and provided a fresh bit of evidence for the case that the economy was slowing to a sustainable, not-very-inflationary pace.
“There’s a lot of pressure on money managers to partake in this market. The market’s perception of whether the cup is half full or half empty has changed to one that it’s half full,” said Affiliated Financial Management Corp chief market strategist Peter Grandich. “Those who were viewing it as half empty are afraid they may get nothing to drink.”
A strong dollar and buoyant Treasury bond prices also supported the rally, which started in morning trading after the government reported on the GNP.
Share prices began the session on a firm note, with the Dow cracking the 2,300 level within the first half hour of trading as money managers, concerned they would miss the market’s current move upward, scrambled to buy shares.
Hopes for a return of individual investors in significant numbers sparked broad gains in stocks of brokerage firms that rely heavily on dealings with the public.
Merrill Lynch gained 2 3/4 to 31, A. G. Edwards rose 1 3/4 to 22 3/8, Paine Webber rose 1 1/8 to 18 1/8, Quick & Reilly added 1 1/8 to 14 7/8 and Charles Schwab rose 3/4 to 10.
Among actively traded blue chips, Eastman Kodak rose 7/8 to 48 5/8, Ford Motor gained 1 to 52 5/8, International Business Machines edged up 7/8 to 126 7/8, Merck added 1 3/8 to 65 and General Electric rose 1 to 47 7/8.
West Point-Pepperell jumped 3 1/4 to 49 3/4. The company said it was looking into alternatives to a takeover bid by Farley Inc.
The NASDAQ composite index for the over-the-counter market added 0.87 to 397.96. At the American Stock Exchange, the market-value index closed at 321.57, up 0.15.
Japanese stocks closed at a record high Friday for the third time this week in broad-based, active trading as sentiment was boosted by Wall Street’s third straight new post-crash high. The Nikkei 225-share index rose 134.32 points to 31,646.13.
Stocks on the London Stock Exchange surged after better-than-expected British trade data, taking the Financial Times 100-share index up 46.1 points to close at 2,005.9. That made a rise of 88.4 points on the week.
