Transportation Issues Set Torrid Trading Pace; Dow Leaps 41.54
Wall Street’s blue chips surged Monday to within striking distance of their all-time high, powered by the biggest ever single-day gain in the transportation issues.
The stock of UAL Corp. set the mood for the session, soaring 46 1/4 to 210 3/4 on reports that investor Marvin Davis of Los Angeles was readying a $200-a-share-plus bid for the company.
UAL’s run-up and its ripple effects on other airline issues sent the Dow Jones index of 20 transportation stocks up a record 94.06 points, or more than 7.5%, to 1,344.06. The gain in the 20-share sector was more than double the previous largest single-day rise of 46.75 points, set on Oct. 21, 1987.
The news prompted buying of other airline stocks. Delta Air Lines climbed 2 3/8 to 74 1/2, AMR gained 3 1/2 to 71 1/2, USAir Group rose 1 to 51 and Southwest Airlines was up 1 at 27.
Analysts Confident
The Dow Jones index of 30 industrials jumped 41.54 points to 2,694.99, just 27.43 points shy of the record closing high of 2,722.42 it reached on Aug. 25, 1987. It also marked the seventh-highest close ever for the market indicator.
Most other broader market measures reached new peaks, having already surpassed their 1987 tops.
As the Dow industrials advance toward their all-time peaks, stock analysts are generally confident that the rally is broadly enough based that it is not a speculative bubble.
For one thing, the blue chips are lagging the rest of the market, which is a good sign. Also, economists point out that while stocks may now be at August, 1987, levels, corporate earnings are much higher than they were then, so the key price-earnings ratio has declined from nearly 20 two years ago to a much more reassuring 13.
Brokers said traders seemed increasingly confident that a recession could be avoided in the months ahead, following an unexpectedly strong report from the government Friday on employment in July.
The news pushed interest rates higher in the credit markets, but also evidently calmed worries that had been developing among stock traders about a possible slump in business conditions and corporate earnings.
One apparent beneficiary of that change of sentiment was the technology group. Hewlett-Packard rose 3 1/8 to 57 1/2, International Business Machines gained 1 7/8 to 117 3/8 and Digital Equipment advanced 2 3/4 to 98.
In the cyclical basic-industry sector, International Paper gained 2 3/4 to 57, Scott Paper was up 1 1/4 to 50 1/4, Alcoa gained 1 1/8 to 72 5/8, Dow Chemical gained 2 1/2 to 95 1/2 and Monsanto rose 3 7/8 to 120.
Advancing issues outnumbered declines by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,054 up, 476 down and 465 unchanged.
Volume on the floor of the Big Board came to 197.58 million shares, up from 169.75 million in the previous session. Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 229.58 million shares.
The Wilshire index of 5,000 equities closed at 3,412.012, up 42.321. Large blocks of 10,000 or more shares traded on the NYSE totaled 4,021, compared to 3,583 in the previous session.
In Tokyo, stock prices closed broadly lower, responding to the yen’s depreciation and suggestions that interest rates will not be falling soon. The key 225-share Nikkei index lost 111.61 points to close at 34,630.38.
In London, share prices ended higher. The Financial Times-Stock Exchange 100-share index ended at a session high of 2,341.5, up 14 points.
Credit
Most bond prices finished slightly lower in edgy trading in anticipation of a big supply of new securities to fund government debt.
The Treasury’s closely watched 30-year bond was unchanged in price. Its yield, which moves in the opposite direction to price, stood at 8.08%.
On Friday, bond prices took their biggest dive in about 22 months as unexpectedly strong employment data jolted the market.
Bond prices started out higher Monday but weakened as the market grew more concerned about absorbing the $29.5 billion in new securities that the Treasury plans to auction this week, beginning today.
President Bush cleared the way for the new debt issue by signing into law Monday a $70-billion increase in the federal debt limit, increasing the borrowing ceiling to $2.87 trillion.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.875%, unchanged from late Friday.
Currency
The dollar edged higher against most key currencies in thin trading, extending last week’s rally, which stemmed from speculation that interest rates aren’t likely to decline soon.
Gold prices slipped. On the Commodity Exchange in New York, gold bullion for current delivery fell to $365.90 an ounce from $367.25 on Friday. Republic National Bank of New York said the late bid for gold was $365.20, off $2.30.
Currency traders said the dollar continued to be buoyed by Friday’s better-than-expected employment figures.
In Tokyo, where trading ends before Europe’s business day begins, the dollar closed at 139.78 Japanese yen, up from 138.05. The dollar closed lower in London at 139.47 yen, and higher in New York at 140.05 yen, up from 139.85.
In London, one British pound cost $1.6075, cheaper for buyers than Friday’s $1.6150.
Commodities
Crude oil futures prices resumed their downward spiral as analysts learned that a summer surge in production by the Organization of Petroleum Exporting Countries is even larger than originally feared.
On other markets, cotton futures slipped the daily trading limit after two listless weeks near the top of their recent price range; sugar futures trended lower after tests revealed that some of the Western European crop was in better shape than expected, and soybeans staged a modest rally on follow-through selling from last Friday.
Petroleum prices gained some support last week amid concerns that last week’s hostage crisis could lead to a U.S. military response, which in turn could have disrupted the flow of Middle East exports.
But with that situation considered less volatile, traders redirected their attention to OPEC overproduction. A respected newsletter pegged July’s output at 21.8 million barrels per day--well beyond the cartel’s official quota of 19.5 million, and above even the 21.2 million barrels that some analysts had thought possible.
Crude oil, which had been over $20 a barrel just 13 sessions ago, settled 5 to 12 cents lower on the New York Mercantile Exchange, with the contract for delivery in September at $17.91 a barrel; heating oil settled 0.28 to 0.74 cent lower, with September at 48.44 cents a gallon, and unleaded gasoline was 0.24 to 0.49 cent lower, with September at 49.75 cents a gallon.
Cotton futures were 1.45 to 2 cents lower on the New York Cotton Exchange, with October at 72.94 cents a pound.
Some rain in Texas over the weekend added to cotton’s decline.
Sugar futures were 0.15 to 0.24 cent lower on the New York Mercantile Exchange, with September at 13.94 cents a pound. The first tests of the sugar beet crops in West Germany and France revealed both to have higher sugar content than the 1988 crop.
Wheat settled 2.75 to 5 cents higher, with the contract for delivery in September at $3.915 a bushel; corn was 3.5 to 5.25 cents higher, with September at $2.2475 a bushel; oats were 1 to 1.5 cents lower, with September at $1.39 a bushel, and soybeans were 1 cent lower to 10.75 cents higher, with August at $6.015 a bushel.
Gold was $1.90 to $2 lower on the Comex, with August at $365.90 an ounce; silver was 3.7 to 4 cents lower, with August at 512.8 cents an ounce. Platinum, traded on the New York Merc, settled $4.50 to $4.70 lower, with September at $481.60 an ounce.
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