Rate Cuts Spur Buying Frenzy; Dow Leaps 41.59 : Markets: The industrials’ close of 2,772.28 is the highest since Aug. 3. More than 250 million shares are traded as “herd psychology” grips market.
Falling interest rates and widespread optimism about a quick economic recovery sent stock prices soaring Monday, despite questions about the federal budget proposal.
The Dow Jones industrial average gained 41.59 to close at 2,772.28. It was the highest market close since Aug. 3, the day after Iraq invaded Kuwait.
However, stock experts remain divided about whether the current strength on Wall Street is a signal of a new bull market or a fool’s rally destined to end once all the fools are aboard.
“There is frenzied buying,” said Gerald Appel, president of Signalert Corp. in Great Neck, N.Y. “You are beginning to get the herd psychology, with people thinking that a new bull market is starting and they need to get in on it.”
Trading volume was strong, with 250.75 million shares changing hands Monday on the New York Stock Exchange, compared to 246.67 million shares on Friday. Advancing issues led decliners by a 4-1 margin.
“People are afraid that the worst is over and they are not in the equity market yet,” added Richard Bernstein, manager of quantitative analysis at Merrill Lynch. “This could be the bear market rally that everybody has been looking for.”
Others maintained that the activity was just the start of a market surge that would test the record highs of last summer, when the Dow Jones industrial average flirted with 3,000.
“I don’t view this as an aberration,” said Eugene E. Peroni Jr., vice president and director of technical research at Janney Montgomery Scott in Philadelphia. “I think this is part of a burgeoning bull market cycle.”
Investors generally ignored the Bush Administration’s new budget proposal, which cuts some spending but still projects a whopping $281-billion deficit despite optimistic--some say unrealistic--projections about spending and economic growth.
Instead, they focused on Friday’s interest rate cuts and a new perception that the “Federal Reserve will do everything short of going to jail” to loosen credit and end the current credit crunch, said Michael Metz, market strategist with Oppenheimer & Co. in New York.
Freer access to credit could force a quick end to the current economic malaise.
“The consensus is we will have a short recession that will be over on June 30 at midnight,” Metz added. “And then the economy is up, up and away.”
Meanwhile, the dollar continued to decline, largely as a result of lower interest rates, and hit a record low against the German mark. Gold prices rose, although several gold mining stocks slid Monday.
* Bank and S&L; stocks soared on hopes that lower interest rates will ease credit problems. Wells Fargo leaped 6 3/8 to 69 3/8; Imperial jumped 3 1/4 to 16 1/4; Security Pacific rose 2 7/8 to 25; BankAmerica, which also announced Monday that it would hike its quarterly dividend to 30 cents per share from 25 cents, gained 2 1/4 to 32 1/8, and Manufacturers Hanover jumped 2 3/8 to 25 1/4.
Among S&Ls;, HomeFed rocketed 1 5/8 to 6 3/8, Great Western soared 1 3/8 to 15 1/4 and Glenfed gained 1 1/4 to 7 1/4.
Bank stocks may have also benefited from so-called short covering, Metz added. Short sellers, who sell borrowed stock on the expectation that they will be able to buy the stock cheaper at a later date, had been shorting bank and thrift stocks because of concerns about the economy and real estate woes. But the Fed’s move boosted bank stocks and forced many short sellers to buy the stock that they had borrowed, which further fueled the rally.
* Industrial stocks continued to advance, despite new evidence late last week that the economy is weakening at a fast pace. Many of the industrial stocks seemed to get a boost at the end of trading. Alcoa rose 1 3/8 to 66 5/8, Emerson Electric gained 1 1/2 to 44 1/8, Cummins Engine soared 2 7/8 to 43, Avery-Dennison was up 1 7/8 to 23 and Tenneco rose 2 to 48 1/4.
* Ford rose 1 1/8 to 29 5/8, but GM slipped 7/8 to 35 1/4. After the market closed, GM’s board cut the quarterly cash dividend on the stock to 40 cents from 75 cents.
* Defense contractors were mixed as investors sorted out the implications of President Bush’s proposed budget. McDonnell Douglas jumped 2 to 40 3/4 and Northrop soared 3 to 24 1/8, but General Dynamics slumped 2 1/2 to 26 and Grumman dropped 1 1/4 to 16 7/8.
* Entertainment stocks saw renewed buying, as Disney rose 5 3/8 to 116 3/8, Orion Pictures jumped 1 5/8 to 12 1/2, Time Warner gained 3 1/4 to 98 7/8, Circus Circus added 1 3/4 to 57 and Caesars World rose 7/8 to 15 1/8. * Once again, the best-performing stocks were smaller issues. The NASD over-the-counter composite index jumped 7.11 to 424.80, a 1.7% rise, versus the Dow’s gain of 1.5%. Among Southland OTC stocks, big gainers included American Ecology, up 3/4 to 9; Cimco, up 1/2 to 9 3/4; Tokos Medical, up 3/4 to 15, and Neutrogena, up 1 to 14 1/2.
* Technology stocks were strong, showing no sign of ending the rally that began last autumn. Lotus Development rose 2 to 20 1/4 after it said it has begun shipping a spreadsheet program for the Next computer. Other tech gainers included Computer Sciences, up 2 1/4 to 55 3/4; Micropolis, up 1 to 11 5/8; Applied Magnetics, up 5/8 to 8 5/8, and Tekelec, up 2 3/8 to 19 3/4.
* Biotech stocks also continued to zoom ahead. Amgen jumped 3 1/2 to 79 1/2 after saying its Neupogen cancer-fighting drug will be reviewed by European authorities for marketing approval on the continent. Among other firms, Immunex rose 3 1/2 to 79 1/2, California Biotech gained 2 1/8 to 14 and Genzyme added 1 1/8 to 32 1/4.
* Woodland Hills-based Zenith National Insurance rose 1 1/4 to 14. Investor Carl Lindner said he had accumulated a 5.1% stake for investment purposes.
Overseas, action was mostly muted. In London, the Financial Times 100-share index ended at 2,172.4, up 6.7. In Frankfurt, the DAX index added 8.52 to 1,435.03.
In Tokyo, the key 225-share Nikkei average closed 130.66 points higher at 23,287.36. In early trading today, the Nikkei rose 237.06 to 23,524.42.
In U.S. markets, the NYSE composite index rose 2.88 to 190.28. The Standard & Poor’s 500-stock index rose 5.29 to 348.34.
On the American Stock Exchange, the market value index rose 4.12 to 323.15. The NASDAQ over-the-counter index was up 7.11 to 424.80.
