Dow Caps 2-Day Rally, Closes Up 43 at 3,416 : Market Overview
Blue chip stocks bounded higher in wild trading for a second day in a row, sending the Dow industrials to a record close amid growing optimism about the global economy. Smaller stocks lagged, though.
* Treasury bond yields eased again, helped by new interest rate cuts in Germany and Japan. But the dollar rally stalled.
Stocks
Traders described the action Thursday as a virtual frenzy that fed on itself as the day progressed.
The buying wave began on Wednesday, as investors digested news that the nation’s leading economic indicators rose in December at the best pace since 1983.
That sent the Dow index up 45 points Wednesday, as Wall Street flocked to industrial companies that should benefit from a stronger U.S. economy.
On Thursday, news of interest rate cuts in Japan and Germany sparked even greater demand for American industrial stocks, on the theory that they also would gain from renewed growth overseas.
By the close the Dow was up 42.95 points to 3,416.74, finally eclipsing the record 3,413.21 that has stood since last June 1.
New York Stock Exchange volume was the seventh-largest ever at 351.14 million shares, up from Wednesday’s 345.41 million.
The stocks leading the charge were a who’s who of American industrial might: Allied-Signal, up 3 1/2 to 65 3/8; Alcoa, up 2 to 76; Cummins Engine, up 4 3/8 to 84 1/2; and Illinois Tool, up 3 3/8 to 74 7/8.
Also, the Dow transportation index hit a record for a second day, rocketing 37.06 points to 1,579.54. With the surge that began Wednesday, the transports have finally topped their old peak reached in 1989, at the height of takeover mania in the airline field.
Analysts who subscribe to the “Dow theory” of investing say it is extraordinarily bullish for the market when both the industrials and transports are hitting new highs.
They also note that even as the market is heating up in the blue chip sector, smaller stocks--the leaders since last fall--are cooling.
The NASDAQ composite index gained just 0.18 point to 708.85 Thursday, as many technology stocks that have rallied since October continued to pull back.
But “that’s the way a bull market behaves--it tends to be group to group” in rotation, says Eric Miller, market strategist at DLJ Securities in New York.
Many analysts believe that smaller issues could lag for a few months, but that they will rejoin the rally before long as the economy expands and corporate profits rise.
While the long-term bullish case is powerful, analysts also note that the market is vulnerable to a short-term hit at any time, should perception about the economy or interest rates change momentarily.
“I think we’ll see some type of short-term top” soon, said David Bostian, economist at Herzog Heine Geduld. “But I think the long-term underlying picture relative to the economy is extremely encouraging.”
Among the market highlights:
* Other industrial names rocketing higher included Ford, up 2 3/8 to 50 1/8; 3M Co., up 3 1/2 to 104 1/4; International Paper, up 3 to 68 3/8; Goodyear, up 2 1/2 to 73 1/2, and Reynolds Metals, up 2 3/4 to 56 1/2.
* Transportation gainers included United Airlines parent UAL, up 4 1/2 to 126 1/4; Conrail, up 2 to 58 1/4; Union Pacific, up 1 3/8 to 61 5/8, and Federal Express, up 1 5/8 to 60.
* Brokerage stocks followed the market higher. Morgan Stanley leaped 3 1/2 to 63 1/4, PaineWebber was up 3/4 to 26 3/4, and Charles Schwab jumped 2 1/2 to 35 3/4.
* Technology issues were mostly flat to down. Intel added 3/8 to 109 1/4, and Motorola inched up 3/8 to 54 3/4, but Conner Peripherals fell 7/8 to 22 1/2, Hewlett-Packard lost 1 1/2 to 69 5/8, and Microsoft sank 3 3/8 to 85. Microsoft may learn today whether the government will charge it with anti-competitive practices.
* Despite the broad rally, several key issues slumped on disappointing quarterly earnings reports, including Amsco International, down 6 3/4 to 23 1/4; toy maker Mattel, off 4 1/2 to 24; and Waste Management, which fell 1 3/4 to 37 3/4.
Overseas, key markets reacted mutely to news of lower interest rates, in part because the cuts had been anticipated.
In Tokyo, the Nikkei average slipped 31.40 points to 17,190.63.
In London, the Financial Times 100-share index lost 7.9 points to 2,865.9.
In Frankfurt, the market closed before the German rate cuts were announced. The DAX index added 0.08 point to 1,601.61.
In Mexico City, stocks rallied from their recent trouncing, with the Bolsa index jumping 52.13 points or 3.2% to 1,659.69.
Credit
Bond yields eased again as news of lower overseas interest rates further reduced the likelihood that U.S. rates will rise soon.
The yield on the Treasury’s 30-year bond fell to 7.18% from 7.20% Wednesday.
Some analysts said there is growing talk that the Federal Reserve could actually cut short-term rates another notch to keep the U.S. economy on track, given the low inflation rate and falling overseas rates. The Fed will get another look at the economy’s health today, with the report on January employment.
Treasury Secretary Lloyd Bentsen fueled hopes for a rate cut when he said the German move to reduce rates “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 as German rates fell.
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 in U.S. trading.
“The German easing was not as pronounced as one might have expected,” said Sung Won Sohn, economist at Norwest Corp.
In New York, the dollar closed at 1.657 German marks and at 124.65 Japanese yen, up from 1.645 marks and 124.38 yen on Wednesday.
Meanwhile, on the commodity markets, light, sweet crude oil for March rose 37 cents to $20.30 a barrel on the New York Merc 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 Comex, and March silver rose 1 cent to $3.67.
Market Roundup, D6
