FINANCIAL MARKETS : STOCKS : War Optimism Pushes Dow Up by 23.27
Stocks closed higher Thursday as optimism about the outcome of the Persian Gulf War, hope for a revitalized economy and some positive earnings surprises rallied investors.
The Dow Jones average of 30 industrials rose 23.27 points to 2,736.39 on top of Wednesday’s 50.50-point jump.
Advancing issues outnumbered declines by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks, with 1,089 up, 511 down and 431 unchanged.
Big Board volume came to 204.24 million shares, against Wednesday’s 226.79 million.
Stocks were buoyed by recent economic indicators that have led investors to believe the recession will be short and shallow, traders said. Unexpectedly higher earnings at a number of companies also spurred buyers.
Investors afraid of being left out of the stock market’s rally committed more cash to equities, boosting blue chips by about 0.9%, traders said.
“Many institutional investors do not want to be caught without equity positions, so they’re putting some cash to work,” said Peter Davies, a vice president at Nomura Securities.
An unexpected increase in German interest rates roiled European markets and knocked the dollar, but had little apparent effect on stocks, traders said.
“The catalyst (for stocks) has been the tremendous amount of cash,” said Jeffrey Kaminsky of Mabon Nugent. “People with huge positions are getting a little itchy.”
The market seemed to take in stride reports of an Iraqi missile attack on the Israeli-occupied West Bank and warnings from Federal Reserve Chairman Alan Greenspan about potential damage to the economy from a longer war.
“People seem to be guessing that this will be a short war,” said Rao Chalasani, an investment strategist at Prescott, Ball & Turben.
The Dow Jones industrial average finished January with a net gain of 102.73 points, or 3.9%, after having tumbled 163.36 points in the year’s first six trading days.
The turnaround has been warmly welcomed by Wall Streeters who look to the market’s performance in January for signs of what it might be for the rest of the year.
Among the market highlights:
* McDonald’s rose 3/4 to 28 1/2; Boeing 1 1/2 to 49 3/8; American Telephone & Telegraph 5/8 to 32 5/8; American Express 7/8 to 22 3/4, and General Electric 2 to 64.
* Among Thursday’s volume leaders, Compaq Computer climbed 3 to 69 3/4 on top of a 3 1/2-point gain Wednesday, when the company posted a 70% earnings increase for the fourth quarter of last year.
* Reebok International climbed 2 1/4 to 14 3/4 after reporting fourth-quarter earnings on target with the company’s forecasts.
* Chubb Corp. added 3 3/8 to 60 3/8. It reported quarterly profits that were higher than expected, analysts said.
* Shares of MCI Communications, whose fourth-quarter profits met analysts’ estimates, gained 2 1/8 to 24 3/8.
* Lotus Development Corp. shares added 1 1/2 to 16 3/4. Its stock, depressed this week by concerns of sharply lower earnings, rose after the company reported a fourth-quarter loss in line with Wall Street estimates, analysts said.
* Xerox Corp., whose fourth-quarter results exceeded expectations, jumped 5 3/8 to 48 3/4.
Several airline stocks, which gained Wednesday, slipped as First Boston said the shares should trade lower in the near-term based on expectations of weak traffic patterns.
* UAL Corp. lost 5/8 to 128 3/4 and USAir Group fell 1/2 to 20 3/8.
Credit
Government bond prices rose slightly but traded in a narrow range as investors awaited today’s report on unemployment.
The Treasury’s bellwether 30-year bond rose 7/32 point, or $2.19 per $1,000 in face amount. Its yield, which moves in the opposite direction of price, fell to 8.19% from 8.21% late Wednesday.
Kevin Flanagan, a money market economist at Dean Witter Reynolds Inc., said bond prices ranged from a quarter-point higher to a quarter-point lower during the day. “I’m not sure if there’s any real reason why,” he said.
Bond prices initially rose on a published interview with Federal Reserve Chairman Alan Greenspan, said Mike Casey, an economist with Ramirez Capital Consultants Inc. Greenspan said the recession could be long and deep if the Persian Gulf War isn’t concluded by April.
The interview raised hopes that the Fed would ease interest rates further to speed economic growth, Casey said.
The federal funds rate, the interest on overnight loans between banks, rose to an unusually high 11% from 6.675% late Wednesday.
William V. Sullivan, director of money market research at Dean Witter Reynolds Inc., attributed the rise to the settlement of two large Treasury note issues, which drains funds from the banking system and pushes up the funds rate temporarily.
Currency
The dollar weakened against most major currencies, particularly the German mark, following an unexpected boost in interest rates by Germany’s central bank.
Currency dealers blamed the dollar’s decline mainly on the German Bundesbank’s surprise decision to raise its key official lending rates by half a percentage point.
The German discount rate rose to 6.5%, while the Lombard rate was boosted to 9%.
“I think it generally was a surprise given the slowing down of economies globally,” said Ronald H. Holzer, a vice president and dealer at Harris Trust & Co. in Chicago.
Higher interest rates in a foreign country make the country’s currency more attractive and the dollar less attractive to investors.
In New York, the dollar fell to 1.47695 German marks from 1.4880 marks Wednesday while the Japanese yen rose to 131.255 yen, up from 131.10 yen. The dollar was also weaker against the British pound from Wednesday. Sterling bought $1.9665, up from $1.9630.
Commodities
Gold futures prices fell for the third straight day on New York’s Commodity Exchange, reflecting the lack of investor interest in metal as a war and inflation hedge.
“The problem is that gold has lost its VIP status as far as the war is concerned. It is now a second-class citizen,” said Peter Cardillo, commodities trading adviser with Jesup, Josephthal & Co. in New York.
Other precious metals rose. On other commodity markets, oil futures rallied; pork futures fell sharply; cattle futures were mixed, and grains and soybeans were mostly higher.
Gold futures settled $3 to $3.10 lower in New York, with the contract for February delivery at $365.80 an ounce; silver was 2.4 to 2.5 cents higher, with February at $3.83 an ounce.
Platinum futures settled $2.90 to $4 higher on the New York Mercantile Exchange, with April at $386.50 an ounce.
Light sweet crude oil settled 35 to 57 cents higher, with March at $21.54 a barrel.
Market Roundup, D6
HOW THE INDEXES ROSE IN JANUARY Small stocks led the market to a sharp gain in January--and historically, a strong January has meant stocks finish higher for the year. (Market Beat column, D3.)
Thurs. Change in Jan. Index close 1990 change Dow transports 1,069.11 -22.7% +17.5% NASD OTC composite 414.20 -17.8% +10.8% Wilshire 5,000 3,245.35 -9.3% +4.6% S&P; 500 343.93 -6.6% +4.2% Dow industrials 2,736.39 -4.3% +3.9% NYSE composite 187.59 -7.5% +3.9% Amex market value 317.54 -18.5% +3.1% Dow utilities 206.74 -10.8% -1.4%
