Dow Climbs 49.50 in Largest Gain Since Iraq Invasion
Stock prices reversed course Friday and had the biggest rally since Iraq’s invasion of Kuwait, although traders were cautious about predicting a definitive end to the huge selloff that on Thursday had brought stock averages to their lowest levels in more than a year.
The Dow Jones industrial index climbed 49.50 points Friday, or 2%, to close at 2,532.92. But the Dow still showed a net loss for the week of 111.88 points, or 4.2%.
Traders attributed the rally mainly to technical factors, such as short covering, and to modestly encouraging news, such as a dip Friday in oil prices. Few predicted a sustained rally. But some said stock prices may now bottom out.
“Stocks are really deeply, deeply oversold on a short-term basis,” said Bill Raftery, a technical analyst at Smith Barney, Harris Upham & Co. Extreme nervousness over the Middle East situation may have sent prices down too far.
John Burnett, a trader at Donaldson, Lufkin & Jenrette Securities, said there “is a perception that the selling over the past several sessions has discounted everything but the end of the world.”
The bond market, still wracked by fears about oil prices and the Persian Gulf situation, finished one of the worst weeks since the stock market crash three years ago with another plunge on Friday. The bellwether 30-year Treasury bond, a sensitive indicator of trends in interest rates, fell 7/32 of a point, or about $2.19 per $1,000 in face amount. Its loss for the week was more than $22. The bond’s yield reached 9.15%, the highest since April, 1989.
In stock trading, the over-the-counter market also rallied strongly, although OTC stocks had been hit the hardest by the recent selloff. The NASDAQ over-the-counter composite index was up 7.11, or 2%, to close at 367.33.
On the Big Board, 943 stocks rose while 643 fell. Volume, although heavy at 199.04 million shares, was less than the 250.44 million shares that changed hands during Thursday’s selloff. “I don’t think that can be good news,” said Jeff Kaminsky, a stock trader at Mabon, Nugent in New York. “I would much rather see strong volume on the way up than on the way down.”
Friday’s rally followed gains in major foreign stock markets, including Tokyo and London. The Nikkei Stock Average closed up 428.13 at 24,165.76, a 1.8% rise. In London, the Financial Times Stock Exchange 100-share index was up 11.4 points, at 2,086.4. In Frankfurt, the German DAX index rose 38.70 points, or 2.6%, to close at 1,559.04.
Analysts said that although the situation around the Persian Gulf remains extremely tense, with Iraqi soldiers surrounding Western embassies in Kuwait, the lack of other major developments was interpreted as an encouraging sign.
Nevertheless, as another weekend of extreme uncertainty approached, both the dollar and gold prices rose. After falling Thursday to new lows against the German mark, the British pound and the Swiss franc, the dollar started off by gaining ground in Asian markets and continued to rise in trading in Europe and then the United States. In U.S. trading, the dollar was quoted at 1.557 German marks, up from 1.548 on Thursday. The dollar was at 1.268 Swiss Francs, up from 1.2598. The dollar rose to 146.47 yen, up from 145.88.
After trading lower overseas, gold rose on the New York Commodity Exchange to settle at $415 an ounce, up $3 an ounce from Thursday.
Oil prices retreated somewhat from the level reached Thursday, which was the highest in seven years. The U.S. benchmark price for West Texas Intermediate crude ended down $1.02 at $30.91 a barrel for October delivery. Analysts attributed the relatively steep one-day drop to profit taking by oil traders.
Michael Rosen, a bond trader at First Interstate Bank in Los Angeles, said he expects bond prices to continue to fall, in response to concerns about the impact of rising oil prices and potential hostilities in the Middle East. He said that some economic fundamentals point to a lowering of bond yields. But he said, “You can throw fundamental analysis out the window right now, especially as tensions (in the Middle East) escalate.”
Market highlights:
* The rally was fueled by heavy buying of blue-chip growth stocks that had taken a beating in recent sessions. Boeing jumped 3 3/8 to 45 7/8, GE gained 3 to 61 1/2, IBM rose 3 1/2 to 100 3/8, Home Depot added 2 5/8 to 31 1/4, Disney soared 2 3/4 to 97 7/8 and Wal-mart rose 1 3/8 to 26 7/8.
* Oil stocks plunged anew. Arco tumbled 3 5/8 to 134 7/8, Unocal dropped 1/2 to 31 1/8 and Chevron lost 1 3/8 to 74 1/4. However, the oil-service group, hit by profit taking on Wednesday, rebounded. Halliburton rose 1 3/8 to 52 and Baker Hughes added 7/8 to 30.
* Tech stocks were clearly targeted by bargain-hunters. Conner Peripherals jumped 1 1/2 to 22 1/4, Intel soared 2 3/4 to 36 and Autodesk leaped 2 7/8 to 47 1/2.
* Big gainers among Southland stocks included Fluor, up 4 to 35 1/2, Jacobs Engineering, up 2 to 17 1/2, Amgen, up 2 5/8 to 44, and MCA, up 2 5/8 to 41 1/4.
Despite the overall rally, prices of utility stocks fell. The Dow utilities average fell 0.75 to 190.96. Doris Kelley-Alston, a utilities analyst at Merrill Lynch, noted that utility stocks move closely with interest rates. She said that when the prices of Treasury bonds started to give way Friday, “We saw it reflected in the electric utility industry.”
CREDIT Gulf Fears Beat Bond Prices Down Bond strategists said prices strengthened early Friday on internal market technical influences and the Commerce Department’s gross national product report, which showed the economy grew by only 1.2% in the April-June quarter, less than many forecasters had envisioned.
The GNP report suggested serious economic problems confronted the United States that required the need for lower interest rates, which tends to boost the value of bond prices.
But the effect of the statistic quickly faded and prices fell as investors refocused attention on rapid developments in the Persian Gulf, where a showdown loomed between U.S. and Iraqi forces over Iraq’s seizure of Kuwait on Aug. 2.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8%, down from 8.063% late Thursday.
CURRENCY Dollar Ends Week on High Note Again The dollar repeated what is becoming a usual Friday performance--rising ahead of an uncertain weekend in the Persian Gulf.
After falling in the previous session to new lows against the German mark, the Swiss franc and the British pound, the dollar was ripe for a technical rebound. It began rising in Asian trading and continued to gain ground when activity shifted to Europe and the United States.
COMMODITIES Cattle Futures Dip on Fears of Slump Cattle futures prices slipped Friday on the Chicago Mercantile Exchange under continuing fears of a recession.
On other markets, oil prices turned lower; soybeans and wheat advanced; corn was lower, and gold posted some minor gains.
Cattle futures settled 0.25 to 0.75 cent lower, with the contract for delivery in October at 76.17 cents a pound; feeder cattle were 0.55 cent to 1.15 cents lower, with August at 88.17 cents a pound; hogs were unchanged to 0.33 cent higher, with October at 48.42 cents a pound, and frozen pork bellies were 1.82 cents lower to 0.30 cent higher, with August at 41.90 cents a pound.
Precious-metals futures erased losses and notched small gains on the Commodity Exchange in New York. Gold settled $2.80 to $3.60 higher, with the December contract at $423.20 an ounce; silver was 6 to 7.9 cents higher, with August at $5.187 an ounce.
Market Roundup, D6
