STOCKS : Dow Surges 44.95 on a Wave of Optimism
A gust of optimism swept Wall Street on Tuesday as the Dow Jones industrial average jumped 44.95 points, or 1.5%, to 2,958.86 and a broad array of cyclical stocks climbed on apparent hope that the recession was nearing an end.
The sharp gain in the stock market came despite the lack of any strong or clear economic news. The bond market also gained modestly.
Analysts were divided about whether the optimism was spurred by the prospect of lower interest rates, confidence about corporate earnings, or anticipation of a summer stock market rally. Some said it was another sign of investor uncertainty about the economy’s direction.
“We had a big (stock market) rise in February. So everybody thinks stocks are going to go higher, and they won’t sell,” said Michael Sherman, market strategist at Lehman Bros. in New York.
“Then the market goes down and they sell. The market pops back up, and they say, ‘Oh my gosh, maybe it is going higher,’ so they buy again. All of a sudden you are up 44 or 45 points and nothing really happened. And tomorrow might be a whole different affair. Who knows?”
But others said the buying was initiated by beliefs that the economy soon will resume growing, a trend that would boost stock prices. Some analysts cited the National Assn. of Realtors report Tuesday that existing-home sales in April increased for the third consecutive month.
Alfred Goldman, vice president for A. G. Edwards & Sons Inc. in St. Louis, said recent economic statistics indicate that “if the economy hasn’t turned up, then at least it has bottomed out.”
Also, long-term interest rates ebbed a bit Tuesday, which might give investors reason to believe that rates will continue to fall. That would help the economy and company earnings, and it could have given consumers reason to believe that the recession is ending, said Richard Bernstein, manager of quantitative analysis at Merrill Lynch.
Yet other market analysts believe that the traditional summer rally just got off to an early start.
“There are periods of seasonal rallies and the summer is one of the most reliable ones,” said A. Marshall Acuff Jr., portfolio strategist at Smith Barney, Harris Upham & Co. in New York. “Since summer seems to be upon us, I guess folks are trying to get an early start on the summer rally.”
Although no one knows exactly why stock prices seem to rise in late spring and early summer, it has happened in 50 out of the past 51 years, Acuff added. “These days people are looking for something that is tangible to grab onto. This might give them a reason to say that the market could go up,” he said.
Whatever the reason, a wide array of industrial and consumer-oriented stocks gained ground. Some of the biggest gainers included traditional cyclical stocks--companies that produce everything from tractors and cars to aluminum and computers.
Specifically, Caterpillar jumped 1 3/8 to 47 5/8, Illinois Tool Works climbed 2 3/8 to 61 and Ford gained 1 1/4 to 34 5/8. Alcoa rose 3 to 70 3/4 and Du Pont advanced 1 7/8 to close at 45.
Volume was moderate, with 162 million shares trading hands on the New York Stock Exchange, compared to 125 million on Friday. Advancing issues led decliners by a 2-to-1 margin.
U.S. financial markets were closed Monday for the Memorial Day holiday.
The Dow’s 1.5% gain was greater than most other major indexes. The New York Stock Exchange composite index rose 2.21 points, or 1.1%, to 208.87. The NASDAQ composite index was up 4.50 points, or 0.9%, to 497.17.
Stocks were mixed on foreign exchanges. Stocks closed mostly firmer in London, supported by Wall Street in late trading. The Financial Times 100-share average closed up 8.6 points at 2,479.7, having traded in a narrow 7-point range all day.
German shares recovered after early profit taking pushed prices down. The DAX 30-share average ended at 1,682.14, a rise of just 0.69 point.
In Tokyo, stocks edged lower. The 225-share Nikkei average lost 35.21 points to end at 25,390.67, lowest in three months.
Meanwhile, the Mexican market continued to advance. The Bolsa index surged 12.28 points, or 1.2%, to a record 1,053.79. In Brazil, however, the Bovespa stock index slumped 2.2%, to close at 9,462.00. The government said it postponed until Friday a decision on allowing foreigners to invest directly in Brazilian stocks.
Credit
Bond prices drifted higher in light trading.
The Treasury’s bellwether 30-year bond gained 1/8 point, or $1.25 per $1,000 in face amount. Its yield fell to 8.28% from 8.29% late Friday.
Economists said there was little direction to the market, which is lacking incentives to move either higher or lower. They predicted a light week of trading until fresh economic news is released by the government.
Traders showed little reaction to a report that consumers’ confidence in the economy had eroded in May. The report by the Conference Board indicated that consumers remain concerned about the recession.
Stephen A. Wood, economist with BankAmerica Capital Markets in San Francisco, said the light activity continued a pattern set last week.
The federal funds rate, the interest on overnight loans between banks, was quoted at 6%, up from 5.375% late Friday.
Commodities
Gold and silver futures prices rose sharply as a weaker dollar, stronger stock market and a variety of supply-and-demand factors triggered a surge in investment demand for precious metals.
On other commodity markets, cotton futures rose; grains and soybeans were mixed; oil futures advanced; cattle were higher and pork futures were mixed.
Gold settled $6.90 to $7.30 higher, with the contract for delivery in June at $363.70 an ounce; silver was 12.4 to 13.5 cents higher, with May at $4.15 an ounce.
Oil futures posted modest gains on the New York Mercantile Exchange in a market slow to get going after the Memorial Day holiday and uncertain about what to do a week before the next meeting of the Organization of Petroleum Exporting Countries.
Light, sweet crude oil finished 3 to 14 cents higher, with July at $21.33 a barrel.
Market Roundup, D6
