Dow Gains 68.07; Ends a Seesaw Week Up 122.77
The stock market closed the week with a red-blooded rally as tumbling oil prices and hope for a federal budget agreement boosted the effects of expiring options and futures contracts.
The Dow Jones industrial index, up 64.85 points in Thursday’s session, tacked on another 68.07 points to close at 2,520.79. Volume was a heavy 221.48 million shares on the New York Stock Exchange, compared to Thursday’s 204.12 million shares.
The Dow was up 122.77 points for the week, marking a gain of 5.1% and more than wiping out last week’s losses. The weekly advance was the fourth-largest in the Dow’s history.
In the last hour of Friday’s session, the Dow added more than 38 points, largely because of the “triple witching hour” expiration of stock options, stock-index options and a stock index futures contract. A blizzard of buy orders was entered after the Big Board distributed a list of order imbalances caused by the expirations.
“I’d say 80% of the move was generated by technical factors--the expirations,” said Trude Latimer, market strategist with Josephthal & Co. in Manhattan.
Also contributing, however, were the hopeful signs from Washington and the Mideast, and short-covering--the purchase of stock to replace shares that were earlier borrowed and sold by bearish investors.
The benchmark West Texas crude oil sold on the New York Mercantile Exchange for November delivery dropped $3.01 a barrel to $33.79 after an Iraqi official’s comment that the world was looking for a peaceful solution to the crisis. The oil futures contract traded as low as $33.50 during the day; for the week, it was off $5.90 a barrel.
In Washington, as House and Senate negotiators met to try to stitch together a compromise deficit-cutting budget, President Bush said he finally felt “optimistic” that an agreement to cut $40 billion from the budget could be reached.
“The markets now are beginning to believe that may happen, and if it does, they believe the Federal Reserve will drop interest rates,” said Tom Sevick, a trader at New Japan Securities in New York.
Among the broader indexes, the Standard & Poor’s 500-stock index jumped 6.74 points to 312.48. The New York Stock Exchange composite index rose 3.27 to 170.40.
There were 1,129 advancing Big Board issues. Another 499 declined, and 375 were unchanged for the day.
Despite Friday’s advance, which came on the third anniversary of the October, 1987, stock market crash, some analysts held out only the most modest hopes that next week will see further price gains. Many institutional investors are simply staying on the sidelines to avoid the turbulence that they believe is inevitably ahead, analysts said.
“More advance? I’ll have to think about it over the weekend,” said New Japan’s Sevick.
Josephthal’s Latimer said an increasing number of institutional investors now believe it is prudent to buy at least some stocks at these prices.
“Certainly, the institutions have the cash to buy if they want to,” she said.
She predicted that prices will go higher before testing new lows and forecast that the Dow could reach 2,700 over the next few weeks before reversing ground.
For it to go higher, “it would have to be on good news I don’t foresee,” she added.
The weekly advance in the Dow was the biggest since Nov. 2, 1987, when the index gained 220.16 points after the Oct. 19, 1987, crash.
Market highlights:
* Gainers among the blue chips included Philip Morris, up 1 1/2 at 48 3/8; International Business Machines, up 2 1/4 at 107 5/8; Coca-Cola, up 2 3/8 at 45 3/4; Exxon, up 1 3/8 at 49 7/8, and Procter & Gamble, up 2 1/4 at 80 3/8.
* Among retailing issues, Sears, Roebuck & Co. rose 2 to 25 7/8; Woolworth gained 1 1/8 to 27 1/8; Wal-Mart Stores rose 1 3/8 to 27 3/4; Kmart was up 5/8 to 24 7/8; J.C. Penney gained 7/8 to 41 7/8, and Toys R Us rose 3/4 to 23 1/8.
* Federal Home Loan Mortgage fell 5 to 31 3/8. On Thursday, the company said it was charging $124 million in losses to reserves on its mortgage portfolios for the third quarter.
* Applied Materials tumbled 3 7/8 to 19 1/8 in the over-the-counter market. The company said its revenue and profits for the fiscal quarter ending Oct. 28 wouldn’t live up to expectations.
In Tokyo, the 225-share Nikkei index ended its fifth-straight day of gains 114.41 points higher at 24,481.49. In London, the Financial Times 100-share index rose 6.4 points to 2,089, while in Frankfurt, the 30-share DAX index rose 12.02 points to 1,482.09.
CREDIT
Bond Prices Rise on Dollar, Oil News Government bond prices rose Friday, boosted by a run-up in the value of the dollar and a drop in oil prices, traders and analysts said.
The price of the Treasury’s bellwether 30-year bond climbed 11/16 point, or about $6.88 per $1,000 in face amount. Its yield, which falls when the bond’s price rises, slipped to 8.75% from 8.81% late Thursday.
Bond prices opened higher, following a rise on overseas markets. Bonds were boosted abroad by a dip in oil prices, said William Pike, a managing director in the government bond-trading department of Manufacturers Hanover Trust Co.
The bond market has closely tracked oil prices since Iraq’s Aug. 2 invasion of Kuwait. The oil price rise has fueled fears of increasing inflation, which reduces the value of fixed-return securities such as bonds.
On the New York Mercantile Exchange, the November contract for the benchmark grade of oil fell $3.01 a barrel to settle at $33.79. Oil prices fell amid signs of good supplies and slackened demand, as well as indications that Iraq may be willing to negotiate a pullout from Kuwait.
Bond prices also were boosted by a jump in the value of the dollar in foreign exchange, said Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Securities Inc. A stronger dollar makes U.S. securities more attractive to global investors.
In addition, Ricchiuto said, the bond market was boosted by a report showing the economy continues to decline. The monthly index on regional industrial activity put out by the Federal Reserve Bank of Philadelphia fell to its fourth-lowest level ever last month, he said.
Signs of economic softening often boost bond prices because they make it more likely the Federal Reserve will ease interest rates.
Meanwhile, in the corporate bond market, prices of many high-yield “junk” bonds rose sharply, boosted by the overall rise in the bond market and a jump in stock prices. However, the rise did not erase the losses junk bonds have suffered in recent days.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 7.813%, down from 7.938% late Thursday.
CURRENCY
Dollar Makes Gains on Most Currencies The dollar closed higher Friday, helped by strong gains in stock prices and optimism about the budget accord.
The dollar had fallen through a psychological barrier of 1.50 German marks to 1.4970 in New York Thursday, but it rebounded Friday, closing at 1.5025 marks in New York.
The Japanese yen was quoted at 125.95, up from 124.40 yen at Thursday’s close.
The British pound closed at $1.9585, down from $1.9710 Thursday.
The Dow Jones average of 30 industrial stocks closed up 68.07 points, or 2.78%, at 2,520.79, bringing the two-day gain for the Dow Jones industrial average to more than 130 points.
Progress in Washington on cutting the massive budget deficit also helped boost the dollar. The Senate approved a package of tax increases and spending cuts endorsed by President Bush.
COMMODITIES
Gold Futures Climb for 3rd Day in Row Precious metal futures prices rose for the third straight day, partially offsetting recent steep losses as the sharp drop in oil prices stirred speculation that interest rates may fall.
On other commodity markets, copper futures rose sharply; livestock and meat futures were mixed, and grains and soybean were mixed.
Gold futures settled $2.70 to $2.80 higher on New York’s Commodity Exchange, with the spot price, represented by the contract for October delivery, at $372.80 an ounce; silver was 5.8 to 6.1 cents higher, with October at $4.258 an ounce.
Platinum outpaced the other precious metals. Platinum futures ended $10.50 to $11.50 higher on the New York Mercantile Exchange, with October at $407.70 an ounce.
