Dow Soars 58.41, Just a Whisper Short of Record
A burst of enthusiasm sent stock prices soaring Tuesday and pushed the Dow Jones industrial average to within a whisper of its all-time high. Other market indexes hit new peaks, making investors in American stocks roughly $68 billion richer by the end of the day.
Several market experts said Tuesday’s activity was inexplicable--something to be appreciated, not analyzed.
“I can’t give you a scientific reason for it,” said Michael Sherman, chief investment strategist at Lehman Bros. in New York. “It is not a science.”
Added Hugh Johnson, chief investment officer of First Albany Corp. in New York: “If you search the financial landscape looking for a fundamental justification for this, you will be sorely disappointed. It just isn’t there. It’s like going to the swimming hole in the summer. You just plunge in and enjoy it.”
There was plenty for investors to enjoy:
* The Dow Jones industrial average surged 58.41 points, or 2%, to close at 2,972.52--fewer than 30 points away from its all-time high of 2,999.75 reached last July.
* The Wilshire Associates equity index rocketed $68.4 billion to $3.58 trillion--an all-time high. The Wilshire index reflects the market value of all listed common stocks. The previous high was recorded Oct. 9, 1989, at $3.52 trillion.
* The New York Stock Exchange composite and the Standard & Poor’s 500 also hit new peaks.
* Gaining stocks on the NYSE swamped losers by a 13-to-4 margin, as volume surged to 253.70 million shares from 199.83 million Monday.
Meanwhile, bond prices rose, which pushed yields down slightly to 8.24% from 8.29% Monday. It was the first drop in bond yields in over a week.
Market experts said the slight drop in bond yields was a positive sign for stock prices since lower interest rates tend to help corporate earnings. Stock prices were also helped by short sellers, who had previously sold borrowed shares and found themselves compelled to buy at inflated prices to cover their short positions.
Nevertheless, these positive factors were insufficient to explain the strength of Tuesday’s rally, market experts said. The Dow was up sharply all day, and was up as much as 72 points late in the day, before falling back a bit.
“You can’t put your finger on exactly why the move is occurring,” said Eugene E. Peroni Jr., director of technical research at Janney Montgomery Scott in Philadelphia. “Presumably the market is serving as a faithful barometer of what’s to come. As I sometimes like to say, FDF--fundamentals to follow.”
Peroni believes that the market is anticipating a strong economic rally later this year that will be fueled by increased consumer confidence, hiked spending and enriched corporate profits.
The allied success in the Persian Gulf War has given the tag “made in America” added cachet, he said. Presumably, that will eventually result in improved profits for U.S. corporations.
“It is a great time to be an American,” added Gerald Appel, president of Signalert Corp. in Great Neck, N.Y.
Many analysts said money managers who have ignored the rally since mid-January now are rushing to buy into stocks, fearing they’re being left behind.
However, there is still no consensus about the market’s future.
Sherman maintains that stock prices could still rise another 20% if this market follows the pattern of bull markets in 1978 and 1982. And Peroni said: “I don’t think (the market) is even on the threshold of topping out.”
However, market experts at Merrill Lynch believe that current stock prices are dangerously high. “Our concern is that the market is now about 20% overvalued,” said Richard Bernstein, Merrill’s manager of quantitative analysis.
Among the market highlights:
* Technology stocks led the surge in a bet on a strengthening economy. Apple soared 4 3/4 to 63 1/8, Compaq leaped 2 3/4 to 71 1/2, Intel jumped 3 3/8 to 51 3/8 and IBM was up 2 7/8 to 133 1/2. Also, Teradata gained 2 1/2 to 17, Micropolis leaped 1 5/8 to 12 3/4 and Advanced Logic rose 1 3/4 to 15 3/4.
* Many industrial stocks were strong. W. W. Grainger gained 1 7/8 to 76 1/8, Cummins rose 1 1/2 to 44, Clark Equipment jumped 1 3/4 to 32 3/4 and Quanex added 1/2 to 18 1/8.
* Drug stocks were also among the market’s leaders, showing a somewhat cautious tone on the part of some buyers. Warner Lambert soared 2 1/4 to 78, Syntex gained 2 3/8 to 78 1/8, Johnson & Johnson added 2 1/4 to 83 3/8 and Amgen rose 4 to 101.
* Many classic growth stocks were targets of renewed buying. Disney added 3 to 125, Home Depot jumped 2 1/8 to 51 3/4 and H&R; Block rose 2 3/8 to 50. Also, Pepsico jumped 2 to 33 7/8, Dreyer’s Ice Cream added 1 7/8 to 29 1/2 and Circus Circus gained 1 3/4 to 67 1/4.
* Among smaller Southland issues, Pinkerton’s rose 1 5/8 to 27 1/4, Quiksilver jumped 1 5/8 to 14 1/8, Birtcher Medical added 7/8 to 13 3/4 and House of Fabrics was up 2 to 35 1/2. Personal-products firm DEP Corp. gained 1 to 6 after reporting quarterly earnings of 16 cents versus 8 cents a year ago.
In London, the Financial Times 100 index finished with a strong gain, up 37.2 points to 2,420.10. In Frankfurt, the DAX index gained 9.40 points to 1,540.26.
In Tokyo, the Nikkei index lost 62.54 points to 25,913.48 but was up 301.06 points at midday today.
Credit
Interest rates fell as expectations of renewed weakness in the U.S. economy returned to the credit markets Tuesday, despite the opposite view taken by the stock market.
The Treasury’s key 30-year bond, which had fallen slightly Monday, rose 17/32 point, or $5.3125 per $1,000 in face value. Its yield, which moves inversely to price, fell to 8.24% from 8.29% late Monday. It was the first drop in yield since Feb. 25.
Bond analysts said the market focused on evidence that economic weakness persists despite the end of the Persian Gulf War and the boost that’s expected to give to consumer confidence.
The Commerce Department reported early Tuesday that factory orders for manufactured goods dropped 1.7% in January. Those orders are a gauge of manufacturers’ production plans so a decrease often means a slump and possible layoffs in that sector.
The bond market ignored a somewhat more bullish report on recent car sales.
Irwin L. Kellner, chief economist at Manufacturers Hanover Trust, said Tuesday’s 58-point run-up on Wall Street lured investors away from Treasuries and kept bond trading moderate.
“The bond market, however, remains very susceptible to any sign that the recession is winding down so I think the trend is still for lower prices and higher yields, especially in view of the huge financing needs of our government, or Kuwait, Germany, Japan,” Kellner said.
The federal funds rate, the interest on overnight loans between banks, slipped to 6% from 6.125% late Monday.
Currency
The dollar closed sharply higher against major currencies, boosted to levels not seen since the Gulf War began.
“It was a technically inspired rally,” said Rayelle Tyler Weber, managing director at International Treasury Consulting.
The dollar closed at 1.544 German marks in New York, its highest close in U.S. trading since Jan. 16, the day before the war began. The close compared to 1.532 marks Monday.
Against the Japanese yen, the dollar closed at 136.30, up from 135.51 Monday. It had reached almost 137 yen before hostilities broke out in the Gulf.
John McCarthy, chief dealer at Algemene Bank Nederland, said there was considerable interest in dollars by corporations, European fund managers and a Far East investor. Dealers said a Southeast Asian central bank was a major purchaser of dollars overseas.
Currency traders began buying dollars on reports describing Soviet President Mikhail S. Gorbachev’s trouble maintaining control of the Baltic Republics, said Curtis Perkins, trader from Chemical New York Capital Markets Group.
Commodities
Live cattle futures prices hit an all-time high of 81.60 cents a pound Tuesday on the Chicago Mercantile Exchange, reflecting strength in cash cattle prices and euphoria over the end of the Gulf War.
Live cattle settled 0.48 cent to 1 cent higher, with the contract for delivery in April at 81.47 cents a pound after its surge to 81.60 cents earlier in the session. The prices exceeded the previous record intra-day high of 81.25 cents and record high settlement of 81.10 cents recorded last Dec. 17.
Cattle futures have risen steadily for more than three weeks along with prices paid on the cash market by meatpackers to obtain supplies for slaughter.
Elsewhere, platinum futures fell sharply on the New York Mercantile Exchange, erasing more than a quarter of the approximately $30 gain posted last week. Prices had been rising on expectations of an economic recovery. Platinum settled $8.30 to $9.10 lower, with April at $397.80 an ounce.
On New York’s Commodity Exchange, gold futures ended $3.20 to $3.30 lower, with April at $366.30 an ounce; silver was 1.5 to 2.4 cents lower, with March at $3.84.
