FINANCIAL MARKETS : Stocks Close Above 2,600 in Late Rally
Blue chip stocks closed above the 2,600 barrier Friday for the first time since the October, 1987, crash after the expiration of some stock options and futures touched off a late buying spree.
The Dow Jones industrial index surged 31.87 points to close at 2,607.36. The 30-share index last closed above 2,600 on Oct. 5, 1987, two weeks before the crash, when it finished at 2,640.18.
For the week, the average posted a 52.54-point gain.
Advancing issues just barely outnumbered declines in nationwide trading of New York Stock Exchange-listed stocks, with 723 up, 712 down and 526 unchanged.
Volume on the floor of the Big Board came to 174.88 million shares, down from 204.59 million in the previous session.
Trading also had been restrained for much of the session due to nervousness about the expiration Friday of some stock options and futures. The July major market index futures and the Standard & Poor’s 100 index options expired in a process that increased the volatility of an already charged market.
On days when these options expire, large trades in index futures, options and underlying stocks by speculators can trigger unusual activity in some shares.
In fact, “the expirations gave the market quite a lift” in the final moments of trading , said Charles Jensen, a market analyst at MKI Securities.
The Dow industrials had been up modestly for much of the day on bargain hunting after Thursday’s lower close.
The Dow initially soared through 2,600 points Thursday on Federal Reserve Board Chairman Alan Greenspan’s promise to try to prevent a recession, then plunged 40 points in a late-afternoon selloff.
“The market recouped a bit in the morning, arresting the late decline yesterday and encouraging some bargain hunting,” said Eugene Peroni, chief technical analyst at Janney Montgomery Scott.
Most analysts expect the market to pause now for a bit. “We’re expecting three or four days of softness or a small backup before we start again,” said Donald Hays at Wheat First Butcher Singer.
Gainers among the blue chips included Exxon, up 1 at 46 3/4; General Electric, up 1 1/8 at 56 7/8; International Business Machines, up 1 3/8 at 114 1/8; General Motors, up 1 1/2 at 44 7/8, and American Telephone & Telegraph, up 1/4 at 37 3/8.
McDonald’s edged up 1/4 to 31 1/2. The company reported second-quarter earnings of 53 cents a share, up from 47 cents in the comparable period a year earlier.
BankAmerica rose 1/4 to 28 3/4. On Thursday, the company reported a larger increase in second-quarter earnings than analysts had been expecting.
USAir Group climbed 1 1/8 to 50 7/8 in active trading. A group led by New York investor Michael Steinhardt said it owns 5.89% of USAir’s stock and may consider seeking control of the airline company.
Tokyo stock prices rose sharply ahead of Sunday’s election in which Japan’s ruling Liberal Democratic Party is expected to suffer a major setback. Expectations that the stock market will pick up after Sunday’s Upper House election encouraged buyers, and the 225-share Nikkei index rose 234.56 points to 33,899.43.
Share prices ended lower on the London Stock Exchange, as the market consolidated gains made in the past two weeks. The Financial Times 100-share index closed at 2,283.0, down 9.3 points.
Credit
Hopes for lower interest rates faded in the credit markets as traders reassessed remarks made a day earlier by Fed Chairman Greenspan.
The pessimism pushed bond prices down. The Treasury’s benchmark 30-year bond was off 9/32 point, or $2.81 per $1,000 in face amount. The yield, which rises when the price falls, edged up to 8.15% from 8.13% late Thursday.
Greenspan said Thursday in a midyear report to Congress that the Fed had shifted its top priority to avoiding a deep recession from fighting inflation. Bond prices rallied after the remarks but then receded late Thursday and on into Friday.
“By the time we heard the entire testimony it became clear that the Fed doesn’t have all the evidence it wants” to cut interest rates right away, said Fred N. Peck, president and chief economist of Hillcrest Economics Group in New City, N.Y.
Cutting rates would stimulate economic growth, but it could also lead to a resurgence of inflation.
In the secondary market for Treasury securities, prices of short-term governments were down 1/32 point to 3/32 point, intermediate maturities dropped 1/16 point to 1/8 point and long-term issues declined 5/32 point to 11/32 point, 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.
The Shearson Lehman Hutton Daily Treasury Bond Index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, declined 1.41 to 1,185.97.
The federal funds rate, the interest on overnight loans between banks, traded at 9.125%, down from 9.188% late Thursday.
Commodities
Soybean futures prices fell modestly on the Chicago Board of Trade while an executive of the Italian firm Ferruzzi Finanziaria S.p.A. said the exchange had put the soybean market “in serious trouble” by forcing traders to liquidate their holdings.
Analysts attributed the price decline more to improved growing conditions than to the ongoing dispute between Ferruzzi and the exchange.
Corn and wheat futures finished mixed in quiet trading.
On other markets, pork belly futures prices fell sharply while livestock futures were mixed, precious metals advanced and crude oil futures declined.
Soybeans settled 3.5 cents to 7.5 cents lower, with the contract for delivery in August at $6.7375 a bushel; wheat was 2.5 cents lower to 0.50 cent higher, with September at $3.9575 a bushel; corn was 0.05 cent lower to 1 cent higher, with September at $2.395 a bushel, and oats were 1.25 cents to 2.5 cents lower, with September at $1.50 a bushel.
Analysts said four days of showers in the western Corn Belt had revived corn and soybean crops, and forecasts for the coming week predicted no return to the withering heat of late June and early July.
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