Dow Soars 63.36 as Good News Triggers Rally : Wall Street: A dive in oil prices and a tentative agreement to cut the federal deficit opened the gates for the bulls to charge back into the market.
Wall Street kicked off the fourth quarter with a strong stock and bond rally, as news of a federal budget pact and a plunge in oil prices helped halt the deepening gloom of recent weeks.
The Dow Jones industrial index leaped 63.36 points, or 2.6%, to close at 2,515.84 in the best gain since Aug. 27. Many buyers were betting that the budget pact will clear the way for lower interest rates ahead, thereby lowering the likelihood of a severe recession. The chance of a negotiated settlement in the Iraq-Kuwait crisis also spurred optimism.
Numerous key stocks jumped more than 5% for the day, as volume on the New York Stock Exchange totaled a heavy 202.21 million shares. The rally was helped by strong market gains overseas. In Frankfurt, West Germany, the DAX index rocketed 85.84 points, or 6.4%, to 1,420.73 as oil prices fell.
The rally continued in Tokyo today. The Nikkei index closed up 2,676.55, or 13.24%, to 22,898.41, after losing 761 points Monday. It was a record single-day surge.
But many experts cautioned against betting that the bear market has suddenly ended. They noted that knee-jerk rallies are typical after prolonged periods of selling in bear markets, as investors and traders reach for any straw of good news.
What’s more, a significant portion of Monday’s buying appeared to come from so-called short sellers, who had bet in recent weeks and months that stocks were going lower. Having guessed correctly, the shorts--who sell borrowed stock--were buying shares on the open market to close out their positions as the market turned.
“I think the shorts caused more of a (buying) flurry than Wall Street had expected,” said Dan Leonard, who runs the $20-million Financial Programs Technology mutual fund in Denver.
Still, analysts were encouraged by the breadth of Monday’s rally, after Friday’s 25-point Dow gain. Winning stocks outpaced losers Monday by 1,192 to 436 on the New York Stock Exchange, and the rally expanded as the day progressed. The Dow was up 17 points at 10 a.m. EDT, 39 points at noon and 56 at 2 p.m.
The Standard & Poor’s 500 index jumped 8.89 points, or 2.9%, to 314.94, and the NASDAQ over-the-counter composite index rose 10.14 points, or 2.9%, to 354.65.
“A lot of people were picking at stocks that have been beaten down dramatically,” said Len Hefter, manager of over-the-counter trading for brokerage Jefferies & Co. in Dallas. “There were legitimate institutional buy orders coming in.”
The burst of optimism was in part a classic Wall Street reaction after months of depressing news, traders noted. By last Thursday, the Dow had lost 572 points, or 19%, from its July peak of 2,999.75.
Now, many buyers badly want to believe that the worst is over and that Monday’s action shows it is time to look ahead to a recovery. Here’s what spurred buyers:
* After months of wrangling, congressional and White House negotiators reached an agreement to cut $500 billion from the projected federal deficit over five years. Though Wall Street is only beginning to sort out what effects the spending cuts and tax increases will have on the economy, investors were simply relieved to have a pact, analysts said.
“I think it’s constructive,” said DeWitt Bowman, chief investment officer for the $56-billion California Public Employees Retirement System. Even so, he said, his fund wasn’t a buyer of stocks on Monday. The pact “still has to be enacted by Congress,” he noted, and many questions remain.
* There was widespread agreement Monday that interest rates will come down soon. Federal Reserve Board Chairman Alan Greenspan has hinted that he would ease credit if a budget accord was reached.
Market strategist Elaine Garzarelli at Shearson Lehman in New York cited the interest rate outlook as a key factor in her decision Monday to turn bullish. She sees the Dow rebounding at least 10% to 12% soon, driven by lower rates.
* Iraq’s renewed interest in diplomatic negotiations helped send oil prices down more than $2 a barrel, and gave stock traders hope. Yet Iraqi President Saddam Hussein’s back-and-forth rhetoric offers little hope of a solution soon, most experts agree.
Investors’ desire to see an end to the bear market in Monday’s events isn’t unusual, analysts say. But many believe that stocks still have further to fall later this year or early next year, after a short-term rally. The bears say the No. 1 problem for the market and the economy is the extraordinary debt built up by companies, individuals and government in the 1980s.
“It’s not just the end of a three- or four-year business cycle this time,” said Peter Eliades, at Stockmarket Cycles newsletter in Los Angeles. “The debt has to be liquidated,” he said, and that will take years and much pain.
Among the market highlights:
* Drug and food stocks were among the biggest gainers, showing investors were mostly seeking out the safer stocks. Coca-Cola jumped 2 1/8 to 41 5/8, Merck gained 4 1/8 to 80 1/4, Philip Morris rose 2 1/2 to 47 3/4 and Conagra added 1 3/4 to 35.
* Other big winners included many of the consumer stocks hardest hit in recent months. Disney rebounded 5 5/8 to 96 1/4, retailer Carter Hawley Hale gained 1/2 to 3, Time Warner rose 2 1/4 to 72 1/2 and Circus Circus rose 2 1/8 to 45 1/8.
* Energy stocks were mostly lower with oil prices. Arco dropped 2 3/8 to 132, Amoco lost 1 to 55 3/4, Halliburton gave up 1 7/8 to 49 1/2 and Unocal fell 1/2 to 30 1/2.
* Some battered technology stocks were snapped up by bargain hunters. Among Southland companies, Computer Sciences rose 3 to 41 1/4, AST Research added 1 to 17 3/4 and Micropolis rose 3/8 to 5 1/8.
In London, the Financial Times-100 index gained 40.6 points to 2,030.80.
CREDIT: Oil, Budget News Ignites Bonds Surge Treasury bond prices surged Monday as the market cheered a sharp drop in oil prices and the federal budget accord reached by congressional negotiators and President Bush over the weekend.
The widely watched 30-year Treasury bond rose 1 1/32 point, or $10.32 for every $1,000 in face amount. Its yield dropped to 8.84% from 8.94% late Friday.
The federal funds rate, the interest banks charge one another for overnight loans, was quoted at 8.25%, up from 8% Friday.
CURRENCY: Chance of Interest Rate Cut Saps Dollar The agreement on the deficit-reduction package sent the dollar lower against major foreign currencies Monday on expectations of lower U.S. interest rates ahead.
In New York trading, the dollar closed at 136.75 Japanese yen, down from 138.50 late Friday. Against the German mark, the dollar fell to 1.557 from 1.567.
COMMODITIES: Gold, Grain, Energy Futures Fall Sharply Gold, grains and energy futures prices declined sharply as conciliatory gestures from the United States and Iraq’s Saddam Hussein eased war jitters.
Gold futures for October tumbled $15.90 to $386.60 an ounce on New York’s Commodity Exchange. October silver fell 12.1 cents to $4.64.
Platinum settled on the New York Mercantile Exchange $7.30 to $6.30 lower, with October at $426.80 an ounce. Silver settled 15.5 to 12.1 cents lower on the Commodity Exchange.
