Dow Soars 40 to Record 2,754.56 After Traders Go on Late Buying Spree

The stock market surged to a record high Tuesday as traders shook off fears of higher interest rates and an unexpected profit squeeze in some high-tech industries to pour money into blue chip issues and consumer stocks.

The Dow Jones industrial average soared 40.84 points to 2,754.56, a stratosphere unsampled since Sept. 1, when the Dow peaked at 2,752.09. A wave of blue chip buying at the end of the day’s trading pushed the average up 20 points in the closing minutes.

Analysts cautioned that the broad market did not fair so well as the bellwether Dow industrials and noted that New York Stock Exchange volume of 182.55 million shares, while well above the sluggish average of the past month, was not much stronger than the average daily trading so far this year.

“It’s not exuberant,” cautioned Robert H. Stovall, president of Stovall/Twenty First Securities, in New York. “You’d think, in the light of the past few years, it would be well over 200 million with a gain like this.”

On a more positive note, Stovall added: “The market has been experiencing a lateral correction for the past month, and that’s now over. The market had jitters over the high dollar, the junk bond scare and then IBM’s profit decline. Now the market is focusing on a new theme: disinflation.

“(Federal Reserve Chairman Alan) Greenspan is moving toward a 1950s-type pattern of slow money growth and low inflation, and the markets believe interest rates will go lower. There’s a lot of cash out there, and on a historical basis, a lot of stocks are not all that expensive.”

The Fed’s policy-making body, the Federal Open Market Committee, held its monthly meeting Tuesday, but as usual the panel was tight-lipped about any decisions it might have made. Nevertheless, the bond market was flushed with optimism as prices rose and yields slumped in the credit markets. The Treasury’s closely watched 30-year bond was up more than $5 for every $1,000 of face value in late afternoon trading, while its yield slumped to 8.16% from late Monday’s 8.21%.

Stovall and other analysts were impressed by the market’s resilience in the face of continued weakness by IBM, which last week revealed sharply lower earnings projections for the third quarter and on Tuesday announced price concessions to stimulate sales.

The computer giant, a component of the 30 industrial issues that make up the Dow average, slumped another 2 5/8 to 106, a 52-week low, and other technology issues suffered also. Supercomputer maker Cray Research was down 2 1/4 to 38 after the company said it planned to cut its work force by 400, or 7%, in response to weak demand for its products. Hewlett-Packard slipped 1 to 48 1/4, and Digital Equipment gave up 2 1/4 to close at 88 3/4.

‘Get Safe Stocks’

Businessland continued its fall, losing 1 3/4 to 10 1/8 after it said third-quarter earnings would be below estimates.

“If IBM goes down and nothing else in the Dow does, people say, ‘It’s time to get back in the market and put my money to work,’ ” said Edward F. Nicoski of Piper, Jaffray & Hopwood in Minneapolis. “I think the correction is over, but now you’ll see the market leadership changing. Right now it’s over for technology, and everybody wants defensive, consumer-oriented issues. When IBM falls, then you go get safe stocks like Procter & Gamble and Philip Morris, where you don’t get hurt.”

On Tuesday, it was precisely such consumer stocks in the Dow Jones that led the upward march. Philip Morris, on a tear in recent weeks following an announced stock split and a new low-smoke cigarette product, added 5 3/8 to close at 172, a new high. Procter & Gamble added 3 1/8 to 124 5/8. American Express, another gainer in recent trading, rose 2 1/4 to 38 1/4.

The most active issue Tuesday was USX, up 1 3/8 on rumors that financier and buyout specialist Carl C. Icahn was adding to his existing 11.4% stake in the company.

Boeing was up 3 1/8 to 59 3/4. The aircraft giant’s unionized machinists were voting on whether to accept a new three-year contract, thereby stabilizing some costs for another few years. After the market closed, however, it was announced that the machinists had turned down their tentative agreement with Boeing.

Nationwide, consolidated volume in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 221.51 million shares.

In London, stocks closed higher, propelled by a strong opening on Wall Street. The Financial Times-Stock Exchange index of 100 blue chips closed 29.4 points higher at 2,318.6.

Share prices dropped sharply in Tokyo, mostly on a flood of sell orders from investment trusts. The Nikkei index fell 256.60 to close at 35,366.37.