2nd Anniversary of Previous Record : Dow Soars to an All-Time High: Closes at 2,734.64
A burst of takeover speculation helped ignite a stock market rally that drove the Dow Jones industrial average up 56.53 points Thursday to an all-time high of 2,734.64.
The rally, on heavy volume, set a new Dow high one day before the second anniversary of the previous record of 2,722.42. “Sometimes Wall Street can outdo even Tinseltown for the dramatic,” said Alfred Goldman, vice president and market analyst at A. G. Edwards & Sons in St. Louis.
The takeover speculation was set off by news that Holiday Corp. would sell off its Holiday Inn chain and spin off its casino and other hotel operations. Takeover rumors soon began nudging the stocks of several other hotel chains and a variety of other companies.
The advance was also powered by program trading, the computer-driven strategy that involves simultaneous trading of stocks and stock-index futures.
The new Dow record was an important milestone for Wall Street, even though other key stock market indexes, such as the Standard & Poor’s 500-stock index, reached new all-time highs several months ago. The Dow record that was set Aug. 25, 1987, presaged the October, 1987, crash that sent the Dow on a 508-point dive, to 1,738.
The Dow has traced an impressive, if uneven, ascent since then, and has gained more than 300 points in a rally that began the end of June. “Very few people in October of ’87 were predicting we’d be where we are today,” said Gene Jay Seagle, market analyst with Gruntal & Co. in New York.
Recent advances have been helped by signs that the economy is not going into a recession, that inflation remains under control and that consumers still seem inclined to spend generously. Many analysts expect strong corporate earnings in the months ahead.
But many analysts greeted Thursday’s record with more caution than euphoria, amid worries that the market may be overextended and ripe for a fall.
“I don’t think it’s time to break open the Champagne yet,” said Edwards’ Goldman, who predicts the Dow will remain in a trading range between about 2,500 and 2,700.
Michael Metz, analyst with Oppenheimer & Co., said he believes Wall Street is now in “the middle stages of a powerful, long-term bull market.” But in the short term, “I certainly don’t see us heading straight up,” he said. “This move today caught me totally by surprise.”
Clouds on Horizon
Among several clouds on the horizon are the possibility of an over-strong dollar, or the chance that the Federal Reserve Board could become alarmed at economic overheating, and begin to tighten interest rates again.
A robust 225.52 million shares changed hands on the New York Stock Exchange, compared to 159.64 million shares on Wednesday. “Investors on the sidelines were forced to jump in, out of fear they’d miss something,” said Goldman.
The Dow’s advance was the biggest since May 12, when the indicator gained 56.82.
The trading session was the busiest since mid-June. The program trading began at midday, and carried the Dow past the old record three times, crossing it the last time in the final minutes of the day. In program trading, buyers buy stocks, while selling the stock-index futures that underlie them.
Analysts were impressed by the breadth of the rally; there were 1,180 advancing stocks and only 359 that lost ground.
Among the other key stock averages, the S&P; 500 advanced 8.07 to 402.71, and the New York Stock Exchange Index gained 3.45 to 195.29. In trading of over-the-counter stocks, the NASDAQ OTC Composite Index also set a record, adding 4.20 to close at 465.88.
News of the sale of Holiday Inns to Bass PLC lifted Holiday Corp.’s stock $6 to $83. During the session, the stock traded as high as $89. Other hotel companies benefiting from Holiday’s news included Marriott, which was up $1.50 to $40.50; Caesar’s World, up 37.5 cents to $39, and Prime Motor Inns, up $1.50 to $37.
Hilton Hotels, already for sale, lost 62.5 cents, to $104.625. But ITT, owner of Sheraton Hotels, took part in the advance, adding $1.875 to $63.875.
International Flavors & Fragrances was driven by rumors that a West German company was considering a takeover offer. The stock rose $5 to $69.25, even though the company said it hasn’t been approached by any bidders. Mentioned as possible acquirers were U.S. units of the West German companies Bayer AG and Hoechst AG.
Also caught up in takeover talk was K mart, which advanced $2.375 to $43.875. With volume of 3.2 million shares K mart was on the NYSE’s most-actives list. Maytag rose $1.50 to $26.50, and Phillips Petroleum was up $2.875 to $28.125, both on very heavy volume.
Texas Air was off 25 cents to $20, after First Boston recommended investors take profits on the stock after its recent sharp rise. Campbell Soup gained 50 cents to $53.50, as it announced plans to cut 2,800 jobs and restructure.
