Dow Surges 19.95 to Record-High 2,821.53
Encouraged by expectations of lower interest rates, cash-rich investors poured billions of dollars into the stock market Monday, sending the Dow Jones industrial index to a new all-time high.
The Dow closed at 2,821.53, up 19.95, after trading as high as 2,857.87 during the day. The surge of buying spurred speculation that Wall Street could be headed into another bull market that could push the Dow as high as 3,000 before year-end. The previous record closing price for the index was 2,810.15, set last Jan. 2.
“I would expect the market to climb over 3,000 before this up-leg is finished,” said Geraldine Weiss, editor of Investment Quality Trends in La Jolla.
Added Eugene E. Peroni Jr., director of technical research at Janney Montgomery Scott in Philadelphia: “This is not an aberration. Not by a long shot. We are seeing a broad-based range of stocks advancing--drugs, foods, entertainment, chemicals, technology, industrials. The very nature of the strength contradicts the external fears about the economy.”
Investment experts attributed much of Monday’s activity to institutional investors jumping into the market after staying on the sidelines for several months.
Big institutions turned wary of the stock market in January, when the Dow fell dramatically due to fears about rising inflation and interest rates and declining corporate profits. Since then, these institutions have been building up tremendous pools of cash, said Hugh A. Johnson, chief investment officer of First Albany Corp.
By the end of March, institutions were sitting on cash reserves of $50.45 billion, the largest since 1982--before the last bull market started, he added.
Moreover, until two weeks ago, many stock experts still were advising clients to stay out of the market because they feared that the economy was overheating and interest rates might be headed higher.
But recently released data on producer prices, retail sales and unemployment indicated that the economy was cooling much faster than previously expected. And that is good news as far as the stock market is concerned.
Wall Street, in theory at least, works six months in advance. So it viewed strong gains in the economy as fueling inflation. High inflation rates would force the Federal Reserve Board to continue to raise interest rates, which, in turn, could have pushed the economy into a recession later in the year.
Now, many economists believe that the Fed will allow interest rates to remain steady for the near term and will start to ease rates before year-end. That should help the economy over the long haul.
“It takes one small event to serve as a catalyst to get people rushing in or out of the stock market,” Johnson said. “Sometimes that event appears unimportant, but it gets the cash off the sidelines.”
If upcoming economic reports indicate a slowdown in inflation, stocks could rise by another 10%, added Walter Murphy, senior market specialist at Merrill Lynch Capital Markets in New York.
However, new highs always pose risks because investors begin to sell out after the market hits certain “resistance levels,” stock experts said.
Moreover, even some optimistic analysts fear that the market could suffer a serious reversal if economic news is less positive than expected.
Oil stocks were particularly strong Monday following news that oil output was beginning to fall, thereby reducing a worldwide glut. The price of a barrel of crude oil for June delivery jumped 59 cents on the New York Mercantile Exchange, closing at $19.54.
That helped boost the market price of Chevron, which closed at 70 1/4, up 1 3/4; Atlantic Richfield rose 2 7/8 to 118 3/4, and Exxon climbed 1/8 to 48.
Computer companies also expanded gains begun on Friday. IBM rose 1/4 to 114 1/4, and Digital Equipment jumped 1 7/8 to 90 1/2.
Regional bank stocks also remained strong. Security Pacific added 1 to 40 3/8; BankAmerica was up 5/8 to 29 7/8, and Wells Fargo rose 1 3/8 to 73 1/2.
Overall, gaining issues outnumbered declining issues by a 2-to-1 margin on heavy trading volume. A total of 225.41 million shares changed hands on the New York Stock Exchange, the second-heaviest volume of the year, trailing only Friday’s volume of 234.04 million shares.
The Standard & Poor’s 500-stock index rose 2.75, closing at 354.75, while the NASDAQ composite index climbed 3.51 to 441.61. The American Stock Exchange index rose 1.84 to 354.34, and the Wilshire Associates index, which measures the market value of NYSE, American and NASDAQ issues, rose $23.42 billion to $3.38 trillion.
In foreign trading, prices surged on the Tokyo stock market. The 225-share Nikkei index rose 530.51 points, or 1.68%, to close at 32,042.65.
Shares on the London Stock Exchange made their largest daily gain since July to finish well above the psychologically important 2,200 level. The Financial Times 100-share index closed at 2,214.5, up 38.6 points, or 1.78%, from Friday.
The DAX index of 30 West German stocks fell almost 1% in Frankfurt to close down 14.70 points at 1,860.33.
THE DOW ON THE QUARTER HOUR
The Dow Jones index of 30 industrial stocks every 15 minutes
Friday close: 2,801.58. Previous record high: 2,810.15. Monday close: 2,821.53, up 19.95
