Optimism Drives Dow to New High : Markets: The index rises 20.35. Investors appear cheered by third-quarter earnings that are better than expected.
Stocks surged to new heights on Wednesday, driven by growing sentiment that the nation’s economy is showing the first real signs of recovery.
The Dow Jones industrial average rose 20.35 points, or 0.7%, to close at 3,061.72, topping the previous record of 3,055.23 set Aug. 28.
More important, trading volume on the New York Stock Exchange reached 227.2 million shares, up from 213.9 million on Tuesday and the highest since 240.6 million shares changed hands Sept. 20.
Two days of 200-million-plus-share volume suggests that a new wave of buying interest could be rolling into the market, analysts said.
The impetus, they said, may be some stronger-than-expected third-quarter corporate earnings reports that suggest that business improved for some companies in the summer, or at least got no worse.
“You’re getting some reasonably good earnings reports, and the general concern over earnings is beginning to lift a little,” said Alan Sachtleben, chief investment officer for stocks at American Capital in Houston.
Wednesday, for example, old-line machinery and chemicals company FMC Corp. reported that its operating earnings rose 12% in the third quarter from a year ago. The stock surged 2 to 48 3/4.
Over the past week, encouraging earnings reports also have come from such major industrial companies as General Electric and International Paper. While there have been many disappointing reports as well, traders say more investors now are inclined to believe that corporate earnings finally have bottomed and will begin to rise later this year and into 1992.
Marshall Acuff, strategist at Smith Barney, Harris Upham & Co. in New York, noted that Wednesday’s market rally was powered by airlines, a key indicator of economic trends. American Airlines’ parent, AMR Corp., reported third-quarter earnings of $1.02 a share, well above the 66 cents a share that analysts had expected. The stock rocketed 4 1/8 to 65 5/8.
Many experts had believed that, even if third-quarter earnings were surprisingly good, most large money managers would be unable to bid stocks much higher because the institutions’ “cash” reserves were very low. Because so much money has already flowed into stocks this year, the reasoning was that it would take a while for institutions such as pension funds to accumulate enough additional cash to begin a new buying spree.
But the Tuesday and Wednesday rallies in big stocks suggest that “we underestimated the buying power that portfolio managers still have,” said Jim Volk, institutional trader at Charles Schwab & Co. in San Francisco.
The new optimism about bigger companies’ prospects is helping to broaden the market rally that has been led all year by smaller stocks. Indeed, while the Dow only Wednesday topped its August peak, the NASDAQ index of smaller issues reached a new high on Tuesday, and another record on Wednesday, gaining 6.83 points to 540.94.
Individual investors have been significant buyers of smaller stocks this year, lured by the promise of better returns than many other investments now pay. As the Federal Reserve has pushed interest rates sharply lower to help the economy, yields on bank CDs and money market funds have fallen to 5.5% or less.
The crossover of small investors from short-term investments to longer-term investments such as stocks and bonds may become a “perpetual motion” machine that will drive the markets into 1992, analysts say: As more investors shift to stocks and bonds and push prices up, conservative investors still stuck in money funds and CDs will feel pressure to join them--creating yet another buying wave.
“These things can go on for much longer than you expect,” Smith Barney’s Acuff says.
Among Wednesday’s highlights:
* Other airline stocks following AMR higher included Delta, up 2 to 70; UAL, up 8 1/8 to 136; Southwest, up 1 1/8 to 27 3/4, and Alaska Air, up 1 3/8 to 21 7/8.
* Among industrial issues, Scott Paper rose 1 3/4 to 37 1/2, Cooper Industries surged 3 to 54 3/8, Alcoa jumped 3 to 63 7/8, Air Products and Chemicals gained 1 5/8 to 72, and Cummins Engine rose 1 1/8 to 38 3/8.
* Many banking and financial stocks continued to advance. BankAmerica jumped 2 1/8 to 44 3/8, First Chicago added 1 1/2 to 26 1/2, Federal Home Loan Mortgage rocketed 9 1/2 to 110 1/2, and brokerage Paine Webber was up 1 1/4 to 29 7/8. But Citicorp slid 1 to 11 3/4 after its stunning loss announcement on Tuesday.
* Among consumer stocks, Mattel surged 1 7/8 to 33 1/8, retailer 50-Off Stores rose 2 1/8 to 25 1/8, Pic ‘N’ Save added 1 1/4 to 21, and Carnival Cruise Lines jumped 2 1/8 to 27 7/8.
* Dial Corp. soared 4 1/2 to 41 1/4 after the company, best known for its soap products, said it is considering restructuring, perhaps spinning off its financial and insurance arms.
Share prices finished slightly higher on London’s Stock Exchange, as investors stayed on the sidelines in the absence of news to influence trading. The Financial Times 100-share average rose 2.3 points to close at 2,579.0.
In Frankfurt, early gains petered out, and the 30-share DAX average fell 14.93 points to 1,570.11.
Tokyo stocks ended mixed with the 225-share Nikkei average closing up 27.02 points at 24,334.67.
Credit
Treasury bond prices fell in light dealings as traders continued to await signs that the government would lower interest rates.
The price of the Treasury’s bellwether 30-year bond dropped 3/16 point, or $1.88 per $1,000 in face amount. Its yield rose to 7.88% from 7.86% late Tuesday.
The federal funds rate, which is the rate banks charge each other for overnight loans, was quoted at 6.0% late Wednesday, unchanged from a day earlier.
Currency
The dollar settled mostly lower in lackluster trading on world currency markets.
Analysts said trading was extremely light as investors stepped aside ahead of today’s release of fresh economic data. The government is scheduled to report on consumer prices and industrial production, both for September.
In New York, the U.S. currency ended at 1.706 German marks, down from 1.713, and 130.10 Japanese yen, unchanged from Tuesday.
Commodities
Crude oil futures prices jumped in heavy trading, briefly touching a nine-month high of $24 a barrel before falling back and settling lower. Analysts said it was premature to say whether the reversal signaled the end of the market’s five-week rally.
Light, sweet crude oil for November delivery finished the day at $23.67 a barrel, 19 cents below Tuesday’s settlement.
On other commodity markets, precious metals rose; livestock and meat futures rose, and grains and soybeans were mixed.
Silver led a modest rally as the precious metals ended a two-day decline on New York’s Commodity Exchange.
Gold for December delivery rose 50 cents to $358.20 an ounce; December silver rose 4.5 cents to $4.127 an ounce.
Market Roundup, D10
