Dow Soars 56.82; Fear of Inflation Diminishes
Stock prices surged in heavy trading today after a government report on wholesale prices eased investor fears about inflation.
The Dow Jones average of 30 industrials surged 56.82 points to settle at a new post-crash high of 2,439.70.
Advancing issues outnumbered decliners by about 10 to 3 on the New York Stock Exchange, with 1,214 issues up, 353 down and 408 unchanged.
Big Board volume totaled 221.49 million shares, against 151.62 million in the previous session.
The NYSE’s composite index jumped 3.42 to 175.13.
At the American Stock Exchange, the market value index rose 2.68 to 348.30.
Prices spurted at the opening as traders shook off the fears that had held the market back all week, keeping many players on the sidelines.
The market stabilized at the higher level during the trading session until a last-minute buying spree in the final hour pushed prices up further.
Investors decided that the price report meant that inflationary pressures were not building, as suggested by last week’s unemployment report, and that the Federal Reserve might not continue raising interest rates.
“The fear until now was not that the economy would overheat but that inflation would rise rapidly and keep the Fed from making moves to ease credit,” said Michael Metz, technical analyst for Oppenheimer & Co. “Now it looks like that has changed.”
Economists cautioned, however, that despite indications of weakness in some areas, the economy is still running at a high rate of activity.
“The number in no way implies that inflation is set to move lower on a permanent basis,” said James Solloway, director of economic research at Argus Research Corp.
Bond prices surged today in one of the strongest rallies of the year, sending interest rates sharply lower, because of the wholesale price report.
The Treasury’s key 30-year bond was up 2 1/8 points, or about $21.25 per $1,000 face amount, at midday. Its yield, which moves in the opposite direction from its price, tumbled to 8.84% from 9.06% late Thursday.
That put the long bond yield at its lowest level since early February.
“It has been a really powerful rally,” said Robert Brusca, chief economist at Nikko Securities International.
Secondary Market
“People are thinking we are past the bulge in inflation caused by oil prices rising. Everybody is perked up and really mesmerized by the idea we might have a soft landing,” he said.
The soft landing many economists are looking for would combine lower inflation with a slowdown in economic growth rather than a recession.
In the secondary market for Treasury bonds, prices of short-term governments were up between 1/2 point and 25/32 point, intermediate maturities advanced by between a full point and 1 7/8 points and long-term issues were up as much as 2 1/4 points, according to the Telerate Inc. financial information service.
