Dow Index Climbs 70.52 : Markets: Germany’s rate-cutting decision inspires investors, but the bond market remains tepid. Meanwhile, the S&P; 500 hits a new all-time high.
Investors around the globe rushed back into stocks on Monday, but many analysts played down the possibility of an extended climb in share prices in the near term.
Germany’s decision to cut its short-term interest rates--for the first time since 1987--was enough of a surprise to send the Dow Jones industrial average up 70.52 points, or 2.1%, to 3,376.22, in the biggest one-day gain yet this year.
Volume on the New York Stock Exchange leaped to 253 million shares, and the broad-based Standard & Poor’s 500-stock index closed at a new all-time high, up 5.69 points to 425.27.
Still, Wall Street’s bullishness was tempered by a relatively small decline in long-term interest rates and by a surge in the price of gold--both suggesting that some investors are as worried about inflation returning as they are about weak economic growth.
A. C. Moore, strategist at Argus Investment Management in Santa Barbara, said investors’ knee-jerk response to the German rate cut in part reflected “a stock market desperate for some ray of good news” after months of gloom.
By reducing rates, Germany takes pressure off its economy and other European nations, which could help encourage new spending by businesses and consumers--with a possible spillover benefit for the American economy. Also, Germany’s action gives the Federal Reserve leeway to cut U.S. interest rates again.
But Moore cautioned against comparing Monday’s rally to the one that followed the Federal Reserve’s dramatic 1-percentage-point drop in its key discount rate last December. The Dow, at 2,914 before that Fed move, jumped 12% to 3,260 by mid-January on hopes that lower interest rates would spur economic growth.
Though Germany’s rate cut greatly boosts the chances of better global growth down the road, experts note that the German move is only a start and may have little impact on America’s economy or those of other nations in the short run.
“Seeing is believing,” said Alan Ackerman, strategist at brokerage Reich & Co. in New York. “Clearly, the Germans could have cut rates more than they did. We need to see follow-through” with further cuts in the months ahead, he said.
In the meantime, the stock market must contend with a host of other concerns--including the presidential election and potentially weak third-quarter earnings reports, analysts noted.
Indeed, Sunnyvale-based computer maker Amdahl Corp. said late Monday that the weak economy has caused demand for its big computers to plummet. The firm forecast a loss in the current quarter, a disclosure that probably will send the stock reeling today from its Monday close of $15 per share.
With the economy in trouble in the near-term, “there are plenty of opportunities ahead for (markets) to be turned on their heads again,” said Gary Schlossberg, economist at Wells Fargo Bank in San Francisco.
Nonetheless, the German rate cut may be enough to put a floor under world stock markets, as investors now at least have greater hope for a bona fide economic recovery in 1993, analysts said.
Outside the United States, stock market gains Monday generally outpaced the Dow index’s 2.1% rise:
* Frankfurt: The DAX index rocketed 67.24 points, or 4.4%, to 1,595.04. It was the biggest daily rise in 18 months.
* Paris: The CAC-40 index shot up 71.61 points, or 4%, to 1,873.60. However, traders noted that demand tapered off in the afternoon after frenzied morning trading.
* London: The Financial Times 100 index closed up 51.2 points, or 2.2%, to 2,422.10. The index had been up as much as 99.5 points at the opening, but lost ground on disappointment that the German rate cuts weren’t deeper.
* Mexico City: The Bolsa index gained 48.72 points, or 3.8%, to 1,342.81, the biggest advance so far this year.
* Tokyo: The Nikkei index gained 363.71 points, or 2%, to 18,471.40. The market is closed today for a holiday.
U.S. stocks zoomed from the opening bell, weakened somewhat at midday, then jumped sharply near the close.
Winners topped losers by 2 to 1 on the New York Stock Exchange and by a slightly smaller ratio on the NASDAQ market. Some analysts said that, given the size of the Dow’s rise, winners should have swamped losers by a far greater margin in the broad market.
Still, the S&P; 500 index, 425.27 at the close, managed to top the previous record high of 425.09 set Aug. 3. The NYSE composite index also hit a record, up 2.93 points to 233.73.
The day’s big gainers were industrial stocks that would benefit from a stronger economy. Many of those issues have been hammered in recent months as investors have feared that the United States was veering toward another recession:
* In the Dow index, Alcoa surged 2 to 70 1/4, GE rocketed 2 3/8 to 77 1/2, 3M Co. gained 3 5/8 to 103, and Caterpillar advanced 3 5/8 to 53.
* Other industrial winners included Monsanto, up 2 1/4 to 57 1/4; Cooper Tire, up 1 5/8 to 29 5/8; Georgia-Pacific, up 2 to 59 5/8, and Phelps Dodge, up 2 3/4 to 49 3/4.
* Among auto makers, Ford leaped 2 5/8 to 42 7/8, GM added 1 1/4 to 34 7/8, and Chrysler rose 1 1/8 to 22 1/2. Recreational vehicle maker Fleetwood Industries gained 1 5/8 to 33 5/8.
* Computer-related stocks jumped. A better economy would be expected to boost computer sales, though Amdahl’s announcement suggested more trouble for the industry in the short term. Apple gained 1 7/8 to 49 1/2, Hewlett-Packard rose 2 1/2 to 59 7/8, AST Research added 1 1/8 to 16 3/8, and Microsoft surged 3 to 81 3/4.
* Railroads, another potential beneficiary of a healthier economy, also surged. Conrail jumped 4 5/8 to 82, and CSX gained 3 to 61 3/8.
While buyers snapped up industrial stocks, however, the overall enthusiasm of the day may have been restrained by investors’ tepid response toward bonds.
Many analysts had expected long-term Treasury bond yields to come down sharply with the German rate cut. Wall Street had assumed that investors would rush to lock in yields if they believed that global interest rates in general were poised to slide anew.
But yields on 30-year Treasury bonds closed at 7.25%, down only slightly from 7.29% Friday.
Analysts said the bond market may have been hurt as some investors switched from bonds to stocks, betting on a stronger economy.
More disturbing is the possibility that investors fear higher inflation in 1993, now that Germany has agreed to join Japan and the United States in pumping up the world economy with easier money.
“There’s a lurking fear that with such an extreme effort to support growth, we’re laying the groundwork for another surge in inflationary pressures,” said William Sullivan, economist at Dean Witter Reynolds in New York.
Inflation expectations also appeared to boost precious metals prices Monday. On New York’s Comex, September gold futures soared $5.90 to $346.80 an ounce, while September silver rallied 9.2 cents to $3.77 an ounce.
Investors typically buy gold and silver when they expect higher inflation to reduce the value of financial investments. However, traders noted Monday that both metals also have industrial uses, and so would be expected to rise in a stronger economy simply from business demand.
Meanwhile, oil prices rallied strongly ahead of this week’s meeting of OPEC ministers, who are expected to maintain current production quotas in an effort to boost prices.
October oil futures jumped 30 cents to $22.31 a barrel on New York’s Mercantile Exchange, the highest since late June.
Market Roundup, D10
MAIN STORY: A1
