Dow Caps 2-Day Rally, Closes Up 43 at 3,416 : Market Overview
The stock market bounded higher, with blue chip issues finishing at a record closing high in frenzied trading, racking up an 88-point, two-day rally as Japan and Germany slashed official interest rates.
* Government bond rates fell as hopes of a rate cut by the Federal Reserve were sparked by the German and Japanese rate cuts.
Stocks
Investors were heartened by a long-awaited 25-basis-point cut in the German discount rate, and a 50-basis-point reduction in its Lombard rate. Japan also cut its official discount rate by 0.75 percentage points to 2.5%.
Both moves sparked hopes that other countries will also shave their interest rates in an effort to stimulate growth.
“This may be the start of a trend, and it gives us room to keep our rates down to keep the economy going,” one trader said.
The Dow Jones industrial average soared 42.95 points to end at a new closing high of 3,416.74, surpassing the old record of 3,413.21 set on June 1 last year.
In the broader market, advancing issues outnumbered declines by more than 2 to 1 on the New York Stock Exchange. Big Board volume, the seventh largest ever, rose to 351.14 million shares, up from Wednesday’s 345.41 million.
The Dow transportation index, the NASDAQ, Standard & Poor’s 500 and NYSE composite indexes also finished at new highs.
Meanwhile, evidence continued to accumulate that U.S. business conditions were improving. The Commerce Department said new factory orders rose 5.3% to a record level in December.
Also, the Labor Department reported that initial claims for state unemployment insurance dropped 11,000 in the week ended Jan. 23. The figure was close to expectations.
While the market’s gains this week have been substantial, analysts said stocks may have room for even more advances.
“I think we’ll see some type of short-term top,” said David Bostian, chief economist at Herzog Heine Geduld. “But I think the long-term underlying picture relative to the economy is extremely encouraging.”
Eric Miller, chief investment officer at Donaldson, Lufkin & Jenrette, said, “We sort of started a blow-off, and there was nothing to stand in its way. I don’t think we needed much of a trigger. People are increasingly fearful of missing a rise.”
Among the market highlights:
* Chrysler Corp. continued to gain, adding 3/4 to 39 3/4. Ford added 2 3/8 to 50 1/8. It was upgraded by PaineWebber to attractive from neutral.
* Allied-Signal climbed 3 3/8 to 65 1/4 on top of a 2 7/8-point gain Wednesday, when the company reported higher fourth-quarter earnings and raised its quarterly dividend from 25 cents a share to 29 cents a share.
* Minnesota Mining & Manufacturing, also bolstered by a strong quarterly earnings report, gained 3 1/2 to 104 1/4.
* Among other industrial issues that benefited from expectations of faster economic growth, International Paper rose 3 to 68 3/8; Aluminum Co. of America 2 1/8 to 76, and Goodyear Tire & Rubber 2 1/2 to 73 1/2.
* On the downside, Amsco International fell 6 1/2 to 23 3/8. The company estimated fourth-quarter earnings a bit below what analysts had been expecting.
* Mattel tumbled 4 1/2 to 24 after the company posted quarterly profit that fell well short of Wall Street estimates.
* Gap Inc., which posted a 7% January sales gain for stores open at least a year, rose 1 3/8 to 36 3/4. Other retailing stocks were widely mixed as traders studied sales reports for last month.
* Transportation gainers included UAL Corp., up 4 1/2 to 126 1/4, AMR Corp., ahead 2 1/4 to 64 3/8, Conrail, up 2 to 58 1/4, Union Pacific, up 1 3/8 to 61 5/8, and CSX Corp., up 2 to 79 3/4.
* Brokerage stocks, which benefit from strong stock markets, also gained. Morgan Stanley rose 3 1/2 to 63 1/4, PaineWebber was up 3/4 to 26 3/4, and Charles Schwab rose 2 1/2 to 35 3/4.
Overseas, London stocks closed lower, with the Financial Times 100-share average losing 7.9 points to close at 2,865.9. On the Frankfurt bourse, the 30-share DAX average ended 0.08 points up at 1,601.61. Tokyo’s 225-share Nikkei average slipped 31.40 points to 17,190.63.
Credit
The yield on the Treasury’s 30-year bond, the bellwether long-term interest rate, fell to 7.18% from the previous close of 7.20%. It’s price was up 1/4 point, or $2.50 per $1,000 in face amount.
“There is a sense out there that the U.S. could join Germany and Japan in cutting interest rates here,” said Anthony Vignola, a money-market economist at Kidder, Peabody and Co.
U.S. bond traders speculated that the U.S. Federal Reserve might follow suit today, after it sees January employment data due out in the morning.
Treasury Secretary Lloyd Bentsen fueled hopes for a rate cut when he said the German move “reflects our shared commitment to strengthening world economic growth.”
The federal funds rate, the interest on overnight loans between banks, was 3.126%, down from 3.25% late Wednesday.
Other Markets
The dollar was mixed against other major currencies, posting moderate gains against the German mark after the Bundesbank’s move.
Hectic European activity brought major corporate players into the market, analysts said, but trading cooled and the dollar pulled off against the mark with heavy profit taking when trading shifted to domestic markets.
“The German easing was not as pronounced as one might have expected,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. “What they did was not much in terms of market expectations.”
The dollar gained marginally on the yen after the Bank of Japan cut its discount rate.
In New York, the dollar closed at 1.657 German marks and at 124.65 Japanese yen, up from 1.645 marks and 124.375 yen respectively on Wednesday.
The British pound rose to $1.441, up from $1.434.
Meanwhile, on the commodity markets, light, sweet crude oil for March delivery rose 37 cents to $20.30 a barrel on the New York Mercantile Exchange on news that OPEC members have reached an understanding to cut production by about 1 million barrels per day.
Gold fell 30 cents to $329.00 an ounce on New York’s Commodity Exchange, and March silver rose 1 cent to $3.672 an ounce.
Market Roundup, D6
