Dow Surges 49.7 on Government Report : Evidence of Slower Economy Triggers Traders’ Optimism
The stock market rallied sharply to new post-crash highs today in buying encouraged by fresh evidence of a slowing economy.
The Dow Jones average of 30 industrials jumped 49.70 to 2,531.87, surpassing the previous closing high since the 1987 crash: 2,517.83 on June 2.
The gain, the largest for the average in six weeks, left it with a net increase of 45.49 points for the week.
Advancing issues outnumbered declines by about 5 to 2 on the New York Stock Exchange, with 1,065 up, 430 down and 474 unchanged.
Big Board volume totaled 198.72 million shares, against 176.51 million in the previous session.
The NYSE’s composite index added 2.81 to 182.86.
The Commerce Department report this morning that new factory orders for durable goods fell 4.2% in May was a pleasant surprise on Wall Street, where traders had been expecting the figures to be unchanged or slightly higher.
Analysts saw the decline as a sign that the economy might be slowing more dramatically than previously forecast.
That stirred some stepped-up talk of a possible business slump. Brokers said, however, that it also raised expectations of falling interest rates and reduced inflation.
In the credit markets, prices of long-term government bonds soared about $15 for each $1,000 in face value, lowering their yield to the 8.18%-8.23% range. Since early spring those bond interest rates have fallen more than a percentage point.
Optimists in the financial world argue that as evidence of a weakening economy mounts, the Federal Reserve will relax its credit policy to cushion the effect.
“The economic data once again reinforced the perception that this economy is going to grow a lot slower before it grows faster,” said Ward McCarthy, economist with Stone & McCarthy Research Associates Inc.
In the secondary market for Treasury bonds, prices of short-term government issues were up between 3/16 point and 1/4 point, intermediate maturities gained between 1/4 point and 7/16 point and 20-year issues advanced 1/2 point by midday, according to the Telerate Inc. 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.
The Shearson Lehman Hutton daily Treasury bond index, which measures price movements on outstanding Treasury issues with maturities of a year or longer, was up 3.98 to 1,171.02.
In corporate trading, industrials also advanced. Moody’s investment grade corporate bond index, which measures total return on a portfolio of 80 corporate bonds with maturities of five years or longer, was up 0.39 to 322.80.
