Dow Surges 27.05 to All-Time High : Securities: Propelled by positive economic data and renewed investor confidence, the market’s closely watched average stages a late rally.
Investors sent the Dow Jones industrial average to a record high Friday, after the release of more positive news about the nation’s economy.
In a late-day buying spree, the Dow shot up 27.05 to close at 3,027.50. For the week, the market was up 113.59 and surpassed the previous record of 3,004.46 reached April 17.
The rally this week has been sparked by indications that the nation’s recession may be near an end. On Friday, the government reported that its index of leading indicators climbed in April for the third month running and that factory orders increased for the first time in six months.
“I think we are past the turning point,” said Hugh Johnson, chief investment officer at First Albany Corp. in New York.
Investors are now more sure of themselves, which is good news for stock prices, Johnson said. Until recently, investors had been waffling, fearful that the light at the end of the tunnel could be an oncoming train. That kept stock prices trading in a narrow range below the psychologically significant 3,000 level, investment experts said.
But a series of economic reports released this week have turned the tide. Those reports delivered positive news about home sales, jobless statistics and personal income. They suggest that the economy is about to rebound and corporate earnings are sure to follow, experts said.
Many stock analysts believe that company earnings will do better than the economy as a whole because of the severe steps firms have taken in the past several months to cut expenses.
“There may be disappointments ahead, but I don’t think they are going to be immediate or major,” said Eric T. Miller, chief investment officer at Donaldson, Lufkin & Jenrette in New York. “I suspect we’ll see some follow through--further gains in stock prices--next week.”
Other market experts remain wary, however. They note that based on price/earnings ratios and dividend yields--two main indicators of stock market strength--stock prices have climbed into “overvalued” territory. And that poses big risks for investors.
“You are getting a certain amount of public euphoria here, and almost every time that happens, there’s a selloff,” said Gerald Appel, president of Signalert Corp., a New York money management firm. “You never know how long a speculative bubble like this is going to go. But with earnings and dividends where they are, I think we are treading in dangerous waters.”
Stocks are currently selling at about 19 times earnings, and dividend yields have dropped to nearly 3%. Just before the stock market crash in 1987, dividend yields dropped to 2.6% and price earnings ratios soared to about 22%.
Some technical analysts maintain that those figures show that the market doesn’t have the strength to climb much further, unless company earnings improve dramatically.
“I see very little upside potential,” said Geraldine Weiss, editor of Investment Quality Trends in La Jolla. “Certainly, investors should be cautioned and be looking in their portfolios for stocks that they’d like to sell.”
Industrial stocks continued to lead the market on Friday. Investors believe that these companies, which have been hard-hit by the recession, will do better than their peers when the recovery comes.
Among the top gainers were paper and newspaper stocks. Specifically, International Paper climbed 2 to 70 5/8, Georgia-Pacific was up 2 3/8 to 57 5/8 and Temple-Inland rose 4 to 46 1/2.
Among newspaper concerns, Knight-Ridder jumped 1 1/4 to 56 1/4, Gannett was up 7/8 to 44 3/8 and Times Mirror rose 3/4 to 31 1/4.
Engineering and building also had a good day. Jacobs Engineering surged 1 3/4 to 23, Fluor Corp. jumped 2 1/4 to 50 1/8 and Kasler Corp. was up 3/4 to 22.
Many of the big losers were concentrated in the drug industry. Amgen dropped 4 3/8 to 122 1/4. Merck fell 1 5/8 to 118 7/8, while Johnson & Johnson slipped 1 1/4 to 90 5/8. Warner Lambert was down 1 5/8 to 71 1/2.
Volume on the New York Stock Exchange was strong, with 232 million shares trading hands, compared to 234 million Thursday. Advancing issues led decliners by a 2-to-1 margin.
Broader market indexes also showed strength. The NYSE composite index was up 1.49 to 212.99. The Standard & Poor’s 500 rose 2.87 to 389.83. The American Stock Exchange market-value index gained 2.20 to 371.99. And the NASDAQ over-the-counter index rose 2.92 to 506.11.
In overseas trading, prices ended higher on the London Stock Exchange, although volume was low because of spring vacation at schools. The Financial Times 100-share index rose 8.3 to 2,499.5.
A rush of buying by investors outside the country swept German shares to a yearly high. The 30-share DAX index closed up 22.58 at 1,704.11 after reaching a 1991 high of 1,710.05.
In Tokyo, the 225-stock Nikkei index rose 142.22 to 25,789.62.
Credit
Three reports hinting that the recession may have bottomed out pushed bond prices lower, as investors shed hope that the Federal Reserve would ease interest rates.
The Treasury’s bellwether 30-year bond fell 17/32 point, or $5.31 per $1,000 in face amount. Its yield climbed to 8.26% from 8.21% Thursday. Traders sold bonds after increases in the government’s index of leading economic indicators and in factory orders and after a survey of Chicago-area purchasing managers showed that business activity was up in May.
“There’s just great concern that interest rates will rise as the economy starts to recover,” said Carol A. Stone, senior economist with Nomura Securities International Inc. “An increased pace of economic activity brings with it more credit demand and the potential for more inflation.”
Such fears generally hurt bond prices because higher rates and inflation erode the value of fixed-income securities.
The federal funds rate, the interest on overnight loans between banks, was 6%, down from 5-13/16% Thursday.
Currency
The dollar staged a strong advance on world currency markets, bolstered by fresh evidence that the U.S. economy is hauling itself out of recession.
Driving trading were the favorable economic reports.
The dollar rose to 1.7430 German marks from 1.7200 Thursday. Analysts attributed the rise to nervousness over whether Soviet President Mikhail S. Gorbachev can hold on to power.
Selling of the mark began after outgoing CIA Director William Webster said Gorbachev’s future is “increasingly uncertain.” “That scared them a little bit,” said David Wilson of the Girozentrale trading house.
Against the Japanese yen, the dollar closed at 138.30, up from 137.80 Thursday.
The British pound fell to $1.6970 from $1.7124 on Thursday.
Other dollar rates in New York, compared to Thursday, included: 1.4855 Swiss francs, up from 1.4645; 5.9100 Swiss francs, up from 5.8350; 1,293.00 Italian lire, up from 1,279.50, and 1.1450 Canadian dollars, down from 1.1453.
Commodities
Prices of platinum futures rose modestly in what was viewed as a correction to an overreaction to news that a Japanese car company had developed a platinum-free catalytic converter.
On other commodity markets, palladium futures drifted lower; gold and silver retreated; grains and soybeans rallied; most livestock futures fell, and energy futures fell.
Platinum futures settled $1.10 to $1.60 higher on the New York Mercantile Exchange, with the contract for delivery in June up $1.60 at $376.80 an ounce. Palladium was $1.50 to $1.70 lower, with June at $96.35 an ounce.
Both moves were reversals from the previous session, in which platinum plunged and palladium soared on the announcement that Nissan Motor Co. had developed a catalytic converter that substitutes palladium and other elements for higher-priced platinum.
Catalytic converters, which cleanse automobile exhaust of some harmful gases, account for about 40% of platinum consumption.
Analysts said Thursday’s drop of more than $20 in platinum and gain of about $6 in palladium were overreactions to the Nissan news.
“Nissan still has a lot of testing to do,” said Fred Demler, metals economist with Paine Webber Inc. in New York.
On New York’s Commodity Exchange, gold futures settled $1.70 lower, with June at $361.40 an ounce; silver was 4.7 to 4.8 cents lower, with July at $4.117 an ounce.
Grain and soybean futures advanced on the Chicago Board of Trade amid worries about Midwestern crop weather and speculation that the Bush Administration would announce a Soviet food aid package over the weekend.
Wheat futures settled 1 to 2 cents higher, with July at $2.87 a bushel; corn was 1 to 4 cents higher, with July at $2.45 3/4 a bushel; oats were unchanged to 3/4 cent higher, with July at $1.23 3/4 a bushel, and soybeans were 1/2 cent lower to 6 3/4 cents higher, with July at $5.81 3/4 a bushel.
In the energy market, light, sweet crude oil settled 19 to 20 cents lower, with July at $21.13 a barrel.
