STOCKS : Dow Up 29 to Record on Interest Rate Hopes
The stock market’s late-summer rally roared back to life Wednesday as prices hit new highs on a surge of optimism about lower interest rates.
The Dow Jones industrial average jumped 29.07 points, or 1%, to 3,055.23. That topped the previous record of 3,040.25 last Friday.
Advancing issues outnumbered declines by more than 2 to 1 on the New York Stock Exchange, as Big Board volume totaled 171.95 million shares, up from 144.67 million Tuesday.
The government sprang a surprise on investors when it reported that revised gross national product declined at an annual rate of 0.1% in the second quarter. GNP had previously been reported as positive, at a 0.4% annual rate.
The report showed that the recession didn’t end in the spring. While investors might normally be expected to react negatively to the idea of a lingering recession, the GNP figure sparked new expectations that the Federal Reserve will cut interest rates again soon.
“Generally, we have the hope of continued (credit) easing, and the effect of the Russian situation is beginning to dissipate,” said analyst Gene Seagle at Gruntal & Co.
Alice Sadlo, analyst at McDonald & Co., said selective buying is undergirding the market, defying bears who argue that stocks are overpriced. “People are picking and choosing,” and on any given day enough buyers are present to keep the bull rise intact, she said.
The market’s broad appeal is evident in the new heights scaled by other key indexes besides the Dow. The Standard & Poor’s 500 index, NASDAQ composite and NYSE composite all rose in tandem with the Dow Wednesday, and all are at records.
Among the market highlights:
* Drug, biotech and other health-care stocks propelled the market higher. Merck soared 2 3/4 to 127 7/8, Warner-Lambert gained 1 3/8 to 72 5/8, Genzyme leaped 4 3/8 to 42 5/8, Immune Response surged 2 3/8 to 26, and Tokos Medical rose 1 3/4 to 35 3/4. Biotech leader Amgen jumped 8 to a new high of 162 3/4 after Montgomery Securities raised earnings estimates.
* Buyers flocked to auto stocks and other industrial issues, despite the GNP report. The expectation is that another cut in interest rates by the Fed will help jump-start the economy, leading to a pick-up in business no later than early next year. GM rose 1 to 38 3/8, Ford advanced 3/8 to 31 3/8, and Chrysler gained 1 to 12 3/4. On Tuesday, Lee A. Iacocca, Chrysler’s chairman, made a bullish 1992 auto sales forecast.
* Stocks hitting new highs were spread across a broad cross-section of businesses, showing the rally’s strength: Marvel Entertainment gained 1 3/8 to 26, financial services firm Broad Inc. rose 1/4 to 14, PC software firm Quarterdeck was up 1 7/8 to 21 1/8, and Coca-Cola added 1 3/4 to 66 3/8.
* Strong demand continued for Latin American issues. Mexico Fund soared 1 5/8 to 25 1/2, Mexico Equity & Income Fund gained 7/8 to 14 1/8, Telefonos de Mexico added 5/8 to 37 3/8, Chile Fund jumped 1 3/8 to 31 3/4, and Latin America Investment Fund surged 2 1/4 to 29.
* On the down side, AnnTaylor Stores fell 2 7/8 to 29 1/2. The company said its August sales in stores open at least a year fell 5%.
In Tokyo, the 225-share Nikkei average fell 19.67 points to 21,621.63. In London, the 100-share Financial Times index rose 4.4 points to 2,624.2. Frankfurt’s DAX index added 0.38 point to 1,647.50.
Bond prices continued to advance sharply, bolstered by the negative GNP report.
The Treasury’s 30-year bond, up 7/32 point Tuesday, advanced another 25/32, or about $7.81 per $1,000. Its yield tumbled to 8.05% from 8.12% Tuesday.
The GNP report that the recession lingered in the second quarter increases the likelihood that the Federal Reserve will cut interest rates again, bond traders believe.
Traders also were cheered by a robust auction of $9.25 billion in five-year Treasury notes. The average yield on the notes was 7.37%, lowest in four years.
The federal funds rate, the interest on overnight loans between banks, eased to 5 3/8% from 5 7/16% Tuesday.
The dollar declined after the Commerce Department issued the GNP report. Expectations of lower U.S. interest rates sent some traders scrambling to buy currencies of other nations whose securities are expected to offer better returns.
The dollar settled at 136.55 Japanese yen in New York, down from 137.00 Tuesday. It also closed at 1.739 German marks, from 1.750.
Copper futures surged Wednesday on improved demand and a near-term crimp in supply. The September contract on New York’s Comex rose 0.75 cent to $1.04 a pound, a high not seen since May 3.
Increased auto industry demand for copper was the major reason for the gain. As auto makers began producing 1992 models, copper refineries were caught with limited supply, analysts said.
Oil futures fell on the New York Merc after the American Petroleum Institute said supplies of both crude oil and refined gasoline have grown over the past week. October light, sweet crude was down 24 cents to $21.74 a barrel.
August gold slipped 50 cents to $353.90 an ounce on the Comex. August silver was 1.2 cents higher at $3.92.
Market Roundup, D6