Dow Skyrockets 64.85 on Burst of Optimism : Markets: Traders appeared to decide that the economy and the Persian Gulf crisis aren’t as bad as they seem.
A sudden burst of optimism sent the stock market soaring Thursday as investors apparently determined that the economy, corporate earnings, federal budget deficit and the Middle East crisis were not as bad as they seemed.
The Dow Jones industrial index jumped 64.85 to 2,452.72, the biggest jump in the blue chip index in nearly two months. Meanwhile, other, broader indicators of market activity also showed strength after months of losses.
“The heretofore consensus that the world was coming to an end has not come to pass,” said Michael Metz, market strate Several events conspired to help the financial markets, analysts said:
* A number of big companies posted stronger-than-expected third-quarter earnings, which boosted the stock prices of such household names as AT&T;, BankAmerica and Dow Chemical.
* The government released economic data that indicated that exports rose during the month of August--good news. The bad news was that consumer prices rose and the trade deficit widened. However, the hikes in consumer prices and the trade deficit were blamed on higher energy prices caused by Iraq’s invasion of Kuwait. The figures were actually encouraging once the oil price hikes were excluded, economists said.
* The bond market rallied, paring the yield on the benchmark 30-year bond to 8.83% from 8.88% the day before.
* Oil prices fell sharply during the morning hours. Although they recovered later, some investors apparently took the steep drop as an indication that they would ebb somewhat in the future.
“You have oil prices dropping, interest rates dropping and indications that there is some glimmer of hope for the economy,” Metz added. “I think (the Dow) has another 100 points to go on the plus side before we need to take another look.”
Investors also believe that Congress is likely to come to an agreement on the federal budget soon, said A. Marshall Acuff Jr., portfolio strategist at Smith Barney, Harris Upham & Co. And there is renewed optimism about the prospects for peace in the Middle East.
While market experts acknowledge that little of substance has changed, there has been something of a mood swing on Wall Street.
“After a while of beating yourself over the head, things start to look better when you just stop,” said Laszlo Birinyi, president of Birinyi Associates in New York.
Indeed, the mood was so good that the market suffered only a temporary setback when Americans got word that Israeli soldiers had again fired on a group of Palestinians. That caused stock prices to fall back slightly at noontime, but when it became clear that the Dow would still show a gain for the day, traders bid prices back up.
However, some analysts said stocks were simply due for a bounce because investors had been too negative during the past several months. “Basically, the market has been oversold and it was due for a rally,” Acuff said.
The market’s biggest pessimists, the so-called short sellers, were also a factor, said Alan Ackerman, market strategist at Gruntal & Co. These short sellers agree to sell borrowed stock, betting that they will earn money if the market falls. However, on Thursday, they were forced to buy shares to cover their bets, Ackerman said.
Nevertheless, several market experts termed Thursday’s activity a “bear market rally”--Wall Street-speak for a good day in an otherwise bad market.
Market highlights:
* Blue chip stocks were among the biggest winners Thursday, with IBM rising 4 5/8 to 105 3/8. Boeing gained 2 1/4 to 48 1/4. Procter & Gamble was up 3 1/4 to 78 1/8, while AT&T; rose 1 1/8 to close at 32. AT&T; was among several companies that issued earnings that exceeded analysts’ expectations. The company said third-quarter profits rose slightly on increased revenues.
* BankAmerica also posted higher profits. The company’s net income rose to $283 million during the third quarter, compared to $254 million during the same period a year ago. The company’s stock price jumped 7/8 to 18 3/8.
* Meanwhile, Dow Chemical and Digital Equipment posted sharply lower quarterly results, but analysts said the market had expected worse. As a result, Digital’s stock price soared 4 1/4 to 51 and Dow Chemical’s share price jumped 2 1/4 to 41 5/8.
* Technology stocks were also strong. Microsoft rose 4 5/8 to 61 1/8. Conner Peripherals jumped 2 1/4 to 19 3/8, and Autodesk climbed 4 1/2 to 40 1/4.
Trading volume was heavy, with 204.12 shares changing hands on the New York Stock Exchange, compared to 161.26 million on Wednesday. Advancing issues outpaced decliners by more than a 2-to-1 margin.
The NYSE composite index recorded a 3.46 gain to 167.05. The Standard & Poor’s 500-stock index rose 6.98 to close at 305.74, while the NASDAQ composite climbed 7.25 to 334.03. The American Stock Exchange index climbed 2.71 to 291.84.
Foreign markets also posted good results, with London’s Financial Times 100-share index up 14.6 to 2,082.6. The DAX 30-share index in Frankfurt gained 29.28 to 1,470.07, and Japan’s Nikkei 225-share index rose 253.26 to 23,859.36.
SHORT COVERING: Columnist Tom Petruno looks at how the practice of short covering is affecting market volatility. D3
OIL PRICES: Crude prices close almost unchanged after a day of see-saw trading. D4
gist at Oppenheimer & Co. in New York.
