Dow Gains 44.80 on Peace Hopes, Inflation Report
The stock market shot higher Friday on encouraging news from the inflation front as well as hopes of lower interest rates and peace in the Middle East.
Stocks also were buoyed by a surging bond market and falling oil prices, which retreated on unfounded rumors of a coup in Iraq.
The Dow Jones industrial index jumped 44.80 points to close at 2,488.61, up 1.8%. Friday’s trading marked a sharp rebound in the performance of the index from declines earlier in the week, including a 44.31-point drop Wednesday.
Despite Friday’s rally, the Dow ended the week down 2.23 points.
For the day, the broader market was up, too. Advancing issues led decliners on the New York Stock Exchange 1,123 to 453, with 428 stocks unchanged.
Big Board volume was 145.16 million shares, down from 155.57 million shares on Thursday.
The government bond market and the New York currency markets will be closed on Veterans Day. Stock exchanges and most commodity markets will be open.
Wall Street reacted favorably to a government report that wholesale prices, not including food and energy, were nearly unchanged in October.
“I think that really gave people a lot of relief,” said Bruce Pally, a vice president and stock trader for the Los Angeles investment firm Bateman Eichler, Hill Richards.
The upbeat inflation report raised hopes that the Federal Reserve may begin to cut interest rates, said Eugene E. Peroni Jr., director of technical research for Janney Montgomery Scott, an investment firm in Philadelphia.
“There is a positive perception among traders that rates will come down over the short run,” he said. Peroni also pointed to the strong Treasury auction this week, a record refunding in which demand was high enough to keep yields lower than they have been in several months.
Investors were heartened by President Bush’s plans to send as many as 240,000 more troops to the Persian Gulf, hoping that the high-profile troop movements will discourage hostilities.
“You don’t move another 100,000 or 150,000 troops if you’re going to declare war tomorrow,” said Michael Metz, market strategist at Oppenheimer & Co.
The market’s spurt was accelerated by computer-driven buying programs and by traders who, going into the weekend, were covering short positions by buying shares they had earlier borrowed and then sold in the expectation that the price would fall, a practice known as “selling short.”
Technical factors helped, too, as the Dow continued to bounce back from a resistance level of 2,430, which was tested three times on Thursday, Peroni said.
Among the market highlights:
* Some bank stocks rallied sharply. They have been favorite targets of short sellers in recent months. The Standard & Poor’s financial index shot up 2.6%. Big gainers included CalFed, up 3/4 to 3 1/4, Golden West, up 1 to 21 5/8, Wells Fargo, up 2 5/8 to 49 3/8, and Security Pacific, up 1 to 21 1/8.
* Oil stocks jumped, once again showing that they are trading independent of oil price movements. Arco soared 2 1/4 to 131 1/2, Chevron rose 1 7/8 to 69 3/8, Pennzoil gained 2 to 66 5/8 and Mobil rose 1 3/8 to 59 3/4.
* Walt Disney Co. gained 1 1/4 to 92 3/8, even though some analysts reduced their 1991 earnings estimates because of worries about theme park attendance. Seidler Amdec Securities cut its 1991 estimate to $7 a share from $7.25.
* Drug stocks were among the market leaders. Warner Lambert gained 2 1/2 to 65, Merck jumped 2 to 80 1/2, Pfizer rose 2 1/4 to 76 3/8 and Amgen gained 1 to 49.
* Airlines continued to weaken on worries over the industry’s financial health. USAir fell 3/8 to 13 5/8, Delta eased 3/8 to 55 3/8, and Alaska Air fell 1/2 to 15 7/8.
In international markets, German shares gained nearly 1%--their steepest rise so far this month--as cautious buying interest from foreign and domestic participants lifted prices. The 30-share Dax index climbed 12.05 points to 1,381.49 but ended 32.83 points lower for the week as a whole.
Tokyo stocks fell but were well off their lows after last-minute buying almost completely offset an earlier decline on the back of a weaker yen. The key 225-share Nikkei index looked as though it was headed for a 500-point plunge in the afternoon but recovered to finish down 38.01 points at 22,931.80.
Share prices ended slightly higher on London’s stock exchange after a lackluster session. The Financial Times 100-share index was up 4.4 points to 2,040.6.
CREDIT: Bond Prices Make Substantial Gains Government bond prices jumped as the market anticipated that the Federal Reserve Board would lower interest rates when it gathers next week, traders said.
The price of the government’s bellwether 30-year bond climbed 29/32 point, or about $9.06 per $1,000 in face value. Its yield, which falls when the bond’s price rises, slid to 8.62% from 8.70% late Thursday.
The government bond market is closed Monday for Veterans Day.
The federal funds rate, the interest on overnight loans between banks, traded at 7.563%, down from 7.625% late Thursday.
CURRENCY: Gulf Crisis Concerns Cushion the Dollar The dollar closed slightly lower against major foreign currencies, pressured by expectations that the Fed may lower interest rates.
Fear of war in the Persian Gulf, however, provided a floor for the U.S. currency.
Caught between the two pressures, the dollar fell slightly in New York to 1.4870 German marks from 1.4930 at Thursday’s close, and it fell to 129.70 Japanese yen from 130.35.
COMMODITIES: Soybean Futures Drag Grain Down Soybean futures prices fell to 8 1/2-month lows Friday on the Chicago Board of Trade, dragging grain futures down as well, after the government issued a surprisingly large estimate of the newly harvested crop.
On other commodity markets, oil and precious metals futures fell, cattle futures rose and pork futures were mixed.
Soybean futures settled 5 to 17.25 cents lower with the contract for delivery in November at $5.6675 a bushel, the lowest settlement of a near-month soybean contract since Feb. 28, when the March contract finished at $5.665.
Oil futures fell sharply on the New York Mercantile Exchange amid profit taking that reflected reduced fears of imminent war in the Middle East.
Light sweet crude oil futures finished $1.01 to $1.64 lower, with December at $33.89 a barrel; heating oil was 2.55 to 4.06 cents lower, with December at 90.24 cents a gallon, and unleaded gasoline was 1.51 to 2.38 cents lower, with December at 88.23 cents gallon.
