Cash-Laden Investors Push Dow Above 3,500 : Markets: Analysts say the rally was sparked by diminished concern about inflation and pent-up demand for stocks.
A surprise rally sent stock prices to record levels Wednesday as inflation worries faded and cash-laden investors stampeded into the market.
The Dow Jones industrial average rocketed 55.64 points, or 1.6%, to 3,500.03, the first close over 3,500 and the biggest one-day gain since March 8.
Analysts said the combination of small investors’ ongoing appetite for stock mutual funds and professionals’ recent reluctance to jump into the market has produced pent-up demand for stocks that could power a significant move higher this summer.
The late rally Wednesday capped a wild day that saw the Dow slide nearly 30 points early on, as interest rates moved up for a sixth straight session.
But in afternoon trading, rates began to pull back modestly, as did gold prices, as rumors swirled that international investor George Soros was selling gold and buying Treasury bonds.
Also, it appeared that the Federal Reserve, which met in Washington on Tuesday to discuss interest rate policy, would take no action to tighten credit--despite surprisingly strong inflation numbers in recent months.
The yield on the Treasury’s bellwether 30-year bond eased to 6.97% from 7.01% on Tuesday, and shorter-term yields also fell.
The sudden relief over rates was enough to bring a torrent of new money into the stock market, analysts said. “We had a little bit of a buying panic,” said Marc Pado, technical analyst for Mesirow Financial in Chicago.
New York Stock Exchange trading volume zoomed to 342 million shares, and NASDAQ trading totaled 317 million shares, the second-heaviest ever for the NASDAQ market.
Some experts say the stock market has been hinting for weeks that it was primed to go higher. Even as interest rates have moved up on inflation worries, the Dow has held steady in a range of 3,440 to 3,480 all month, supported in part by healthy first-quarter profit reports from many companies.
What’s more, smaller stocks have been rallying since late April, when the NASDAQ composite index bottomed around 645. That index jumped 9.65 points, or 1.4%, to 690.43 on Wednesday.
The fuel for Wall Street’s gains is the huge amount of cash sitting in stock mutual funds, analysts say. Tired of 3% bank yields, small investors have poured record sums into stock funds this year, including $11.3 billion in March alone.
The money has come in faster than fund managers could put it to work. At the end of March, nearly $1 of every $10 in stock funds was in “cash” accounts, waiting to be invested in stocks.
“The money is just out there, and it’s going to come into the market,” said Dan Sullivan, editor of the Chartist newsletter in Seal Beach.
He noted that small investors still have an attitude that even slight market selloffs are excuses to buy stocks. “As soon as (stocks) back off, everybody wants in again,” Sullivan said.
Meanwhile, professional investors’ increasing caution about the market in recent weeks also was a sign that a rally was imminent, some analysts say. Growing bearishness on the part of the pros can actually be a bullish sign because the market frequently does exactly the opposite of what the majority of Wall Streeters expect.
On Wednesday, a weekly poll of independent investment advisers by Investors Intelligence, a New Rochelle, N.Y.-based organization, showed that the percentage of bearish advisers had jumped to 38.1% from 30% three weeks ago.
The percentage of bullish advisers was just 32.1%, down from 41.8% three weeks ago. (The balance of advisers expect a short-term market correction.)
With the Dow’s jump to 3,500, some analysts say the market is poised to advance further this summer. Mesirow’s Pado believes that a Dow target of 3,700 to 3,750 is reasonable.
But he said it will be crucial for stocks that interest rates hold steady or fall again.
Among Wednesday’s highlights:
* The market’s rally was broad based, as winners topped losers 1,182 to 762 on the NYSE. Technology stocks were red-hot, responding for a second day to electronics giant Hewlett-Packard’s better than expected earnings report on Tuesday.
Analysts say the continuing surge in demand for computers and other tech equipment is helping to buoy the economy, despite the recent sluggishness in consumer spending.
* Hewlett-Packard jumped 2 3/4 to 87 1/2, Intel zoomed 3 1/4 to 104 1/2, Adobe Systems rocketed 3 3/4 to 68 1/2, Microsoft leaped 4 to 92 1/2, AT&T; shot up 2 3/4 to 60 1/4, and Cisco Systems added 2 1/8 to 55 3/8.
* Many industrial names also rose sharply, a sign that investors continue to expect the economy to improve. Georgia-Pacific gained 2 3/4 to 65 1/4, Dow Chemical rose 1 5/8 to 55, Alcoa added 1 1/4 to 68 3/4, Deere jumped 1 1/4 to 57 1/4, and Allied-Signal surged 1 3/8 to 65 1/2.
* Transportation issues, also sensitive to the economy, were broadly higher. Railroad CSX gained 3 1/8 to 72 3/8, Conrail added 2 1/4 to 53 3/8, and Southwest Airlines flew up 1 3/4 to 38 3/4.
* Brokerage and bank stocks powered ahead. Merrill Lynch soared 3 1/8 to 72 1/8, Schwab gained 1 3/4 to 33, First Interstate leaped 2 1/8 to 57 3/8, and Chase Manhattan rose 1 to 30 1/8.
Overseas, London’s FTSE-100 index slid 27.6 points to 2,819.70 on disappointing April economic data. In Frankfurt, the DAX index eased 11.07 points to 1,617.41.
In Tokyo, the Nikkei index added 151.40 points to 20,380.79.
Commodities
Gold prices fell as speculators grabbed profits from this week’s explosive rise to the highest levels in more than two years.
After another day of frenzied trading, spot gold for May delivery fell $1.80 to close at $373.70 an ounce on New York’s Comex. Early in the session, the price hit $379.50, highest since the start of the Gulf War in January, 1991.
On Tuesday, gold had jumped $8.
The hot rumor Wednesday was that well-known international investor George Soros, whom Forbes magazine estimates has a net worth of nearly $800 million, was selling gold in favor of Treasury bonds.
In New York, a spokeswoman for Soros told Reuters news service that Soros was out of the country, and that the firm wouldn’t comment on its investment moves.
Despite Wednesday’s setback, “This is not a flash-in-the-pan rally” for gold, argues John Geraghty of B&C; Trading Co.
The nearly two-month-long boom in gold has been fed by anxieties among investors that inflation may be heating up.
Also Wednesday, silver and platinum declined along with gold, with July silver down 8.5 cents to $4.54 an ounce and July platinum off $5.20 to $385.80 an ounce.
Elsewhere, crude oil hit a four-month low as higher imports of petroleum burdened the market. June oil futures fell 19 cents to $19.15 a barrel on the New York Merc.
Market Roundup, D6
FINANCIAL MARKETS
