Dow Jumps 41.61 to Post-Crash High on Economic News
The stock market surged to a new post-crash high in active trading Tuesday, after new economic data signaled moderation in the economy and helped ease fears about inflation.
The Dow Jones index of 30 industrials shot up 41.61 points to 2,379.40, the highest level since the Oct. 19, 1987, stock market collapse and well above its previous post-crash high of 2,347.14 on Feb. 7
Tuesday’s move was also the sharpest one-day rise since Oct. 20, 1988. Then the blue chip indicator rose 43.92 points.
In the broader market, advancing issues outnumbered declining ones by about 11 to 5 in nationwide trading of New York Stock Exchange-listed stocks, with 1,047 issues up, 471 down and 464 unchanged.
Share prices leaped at the opening following a sharp rally in the bond market on news that housing starts were down dramatically and consumer prices were in line with expectations.
The Commerce Department reported that housing starts fell 5.4% last month amid rising mortgage rates while applications for building permits plunged 13.7%.
Although the housing numbers raised recession concerns, stock analysts said the market interpreted the report as good news because it signaled a slowing economy that could lead to lower inflation.
Consumer prices jumped 0.5% in March, slightly below market expectations of about 0.6%, according to a report from the Labor Department. “The number was not better than expected but within expectations,” said Jack Garry, equity analyst with Butcher & Singer Inc. “The market is still concerned about inflation but the figures were encouraging. The economy appears to be headed in the right direction.”
The reports also raised the prospect that the Federal Reserve would avert further credit tightening.
“The rise in the bond market and decline in interest rates suggests at a minimum that the Federal Reserve is not going to tighten credit further and . . . is going to be under pressure to lean in the other direction, that is, ease monetary policy,” said Hugh Johnson, senior vice president at First Albany Corp.
Volume on the floor of the Big Board came to 208.65 million shares, up from 128.4 million in Monday’s session.
Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 247.057 million shares.
Among actively traded issues on the NYSE, Northwest Airlines rose 7 1/8 to 97 3/8 after its parent company announced that it might sell the nation’s fourth-largest airline, amid takeover threats from billionaire oilman Marvin Davis and others.
Prime Motor Inns, which agreed to acquire Ramada’s hotel franchise, rose 2 1/2 to 28 1/4, while Ramada fell 3/4 to 11 3/8. Citicorp gained 1 1/8 to 30 1/4 and Wells Fargo rose 2 to 70 7/8.
K mart closed down 1 1/8 at 38 1/8 after a disappointing earnings forecast and Lockheed fell 1/8 to 45 3/4.
Standard & Poor’s industrial index rose 4.86 to 352.87, and S&P;’s 500-stock composite index gained 4.30 to 301.02.
The NASDAQ composite index for the over-the-counter market rose 2.96 to 420.81. At the American Stock Exchange, the market-value index closed at 339.20, up 2.98.
In Tokyo, the dollar closed little changed and shares finished mixed in slow trading Tuesday as market players waited for the release of key reports on price trends in the United States and Japan after the markets closed, dealers said.
The Nikkei index rose 13.33 points to close at 33,321.66.
In London, stock prices closed strongly higher as the release of favorable U.S. economic statistics helped to ease the market’s fears about inflation.
At the close, the Financial Times 100-share index was up 19.7 points at 2,074.4.
Credit
Bond prices rallied strongly Tuesday as traders saw evidence in new economic data that the Federal Reserve’s credit-tightening policy may be working so well that no further rate increases will be needed.
The Treasury’s benchmark 30-year bond rose about 1 1/8 points, or $11.25 per every $1,000 in face amount. Its yield, which moves in the opposite direction from its price, dropped to 8.93% from 9.04% late Monday.
The reports on consumer prices and housing starts were good news for the bond market because a slower economy usually leads to lower inflation. The Federal Reserve has boosted interest rates over the past year to slow the economy and restrain inflation.
In the secondary market for Treasury bonds, prices of short-term government issues rose 3/8 point to 1/2 point, intermediate maturities jumped 5/8 to 7/8 point and long-term issues were up as much 16/32 points, according to Telerate Inc., a financial information service.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
Yields on three-month Treasury bills plunged to 8.77% as the discount fell 9 basis points from the level at Monday’s auction to 8.47%. Yields on six-month bills sunk to 8.92% as the discount lost 15 basis points from Monday’s auction to 8.43%. Yields on one-year bills dropped to 9.13% as the discount fell 20 basis points to 8.44%.
A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 9.50%, down from 9.875% late Monday.
Dollar
The dollar fell Tuesday in reaction to an inflation report that helped stocks and bonds. Gold prices also fell.
In London, the dollar fell against the British pound. It cost $1.7185 to buy one pound, more expensive than $1.7095 on Monday. The pound also rose against the dollar in New York, to $1.7164 from $1.7133.
In Tokyo, where trading ends before Europe’s business day begins, the dollar rose 0.27 Japanese yen to a closing 132.10 yen. Later, in London, it was quoted at 131.48 yen. In New York, the dollar fell to 131.40 yen from 132.16.
Other late dollar rates in New York, compared to late Monday’s rates, included: 1.8525 West German marks, down from 1.8605; 1.6270 Swiss francs, down from 1.6405; 1.1863 Canadian dollars, up from 1.1850; 6.2710 French francs, down from 6.3005, and 1,360.13 Italian lire, down from 1,366.35.
Other late dollar rates in Europe, compared to late Monday: 1.8528 West German marks, down from 1.8565; 1.6283 Swiss francs, down from 1.6385; 6.2750 French francs, down from 6.2825; 2.0935 Dutch guilders, down from 2.0953; 1,366.95 Italian lire, up from 1,364.00, and 1.1848 Canadian dollars, down from 1.1855.
