Dow Tops 3,700 Before Easing to Another Record Close : Market Overview
Promising economic news and strong company earnings buoyed the stock market Thursday, hoisting blue-chips to a new high.
* Long-term Treasury bond yields fell after spiking higher earlier in the session in a powerful rally that revived the recently stalled bull market.
Stocks
The Dow Jones industrial average swept past 3,700 for the first time ever and spent much of the session there before retreating back below the psychologically significant threshold in afternoon action.
The Dow rose 23.20 to 3,687.86, reaching its second record this week. It reached the previous peak of 3,673.61 on Monday.
More broadly based stock market indicators also advanced but didn’t beat their best marks. The New York Stock Exchange’s composite index ended up 1.53 at 258.99. The Nasdaq composite index rose 1.61 to 773.49, well below its best level of the day.
In the broader market, advancing issues outpaced declines by about 4 to 3 on the Big Board, where volume came to 301.22 million shares, up from 287.83 million on Wednesday.
An unexpectedly good economic report from the government inspired the stock market’s rally.
The Commerce Department reported that economic growth accelerated in the third quarter to a 2.8% annual rate despite multibillion-dollar crop losses due to floods in the Midwest and drought in the Southeast.
The gain in the gross domestic product, the sum of all goods and services produced in the United States, was the best so far this year and exceeded the 1.9% rate registered in the second quarter and the paltry 0.8% in the first.
An inflation gauge linked to the GDP crept up at just a 1.6% yearly pace in the third quarter, far more slowly than had been anticipated.
Separately, the Labor Department’s weekly report on new unemployment insurance claims came in about as expected. The number of Americans filing first-time claims for jobless benefits fell by 4,000 last week to 347,000.
Investors also took comfort in the bond market’s response to the economic reports.
Among the market highlights:
* Among cyclical stocks, Caterpillar rose 1 1/4 to 91 3/8 and Whirlpool rose 3/8 to 64. Consumer giant Gillette gained 1 1/4 to 60 3/4, while Procter & Gamble gained 1 1/2 to 54 1/2. Cyclical stocks traditionally rise and fall on the fortunes of the economy.
* Analysts said some positive earnings surprises also encouraged investors. Among them was General Motors’ report of a smaller than expected third-quarter loss. GM rose 2 1/8 to 49, and other auto makers rallied. Ford Motor gained 2 1/2 to 62 7/8; Chrysler advanced 1 7/8 to 57 1/8.
* Much of the action involved Eastman Kodak, which late Wednesday named Motorola chief George Fisher to head the company. Kodak rose 1 1/2 to end at 63 3/4 on heavy trading. Motorola shed 1 3/8 to 104 1/4. “The main psychological impact of the day was Eastman Kodak, and it fed on itself,” said David Bostian, investment strategist at Herzog, Heine & Geduld.
* Xerox rose 5 3/4 to 76 3/8 after reporting third-quarter earnings that exceeded Wall Street expectations.
Overseas markets were mixed. Tokyo’s 225-share Nikkei average ended down 359.33 points at 19,479.45, while Frankfurt’s 30-share DAX average lost 4.62 points to close at 2,038.46. However, On the London stock exchange, the Financial Times 100-share average closed up 8.7 points at 3,163.0.
Credit
The recovery in the bond market was largely driven by technical trading. But analysts said the reversal’s surprising strength put to rest fears raised by the market’s recent downturn.
“It was a wild and impressive trading session today,” said Anthony Karydakis, senior financial economist at First Chicago Capital Markets. “Today’s price action goes to show people are not prepared to throw in the towel yet in regard to the rally.”
The yield on the key 30-year bond fell to 5.94% from 6.00% on Wednesday. Its price, down nearly 1/2 point in early trading, closed 25/32 point higher, or $7.81 per $1,000 in face value. Bond yields and prices usually move in opposite directions.
Bond prices fell in the early going, prior to the release of the gross domestic product report. Fears that the report would show strong growth in the U.S. economy had sent bond prices down sharply in the past week as investors speculated that higher growth would boost inflation. High inflation tends to reduce the value of securities that pay a fixed rate of return, such as Treasury bonds and notes.
The report triggered waves of bond buying by traders who had employed a strategy called short selling. In previous sessions, these traders had borrowed bonds, then sold them immediately on the hope they would be able to pay back the loan by buying bonds at lower prices.
But as prices rose Thursday, many traders who made bets on lower prices were forced to join in the buying spree, purchasing bonds to repay their investments before prices rose even more. That drove the market higher.
The federal funds rate, the interest on overnight loans between banks, was 3.1%, up from 2.7% on Wednesday.
Other Markets
The dollar slid against most currencies as investors sold off the greenback in response to the GDP figures.
Currency traders said the dollar initially rose on the release of the report.
But when the dollar couldn’t reach 1.690 German marks, investors decided to sell the currency and lock in their gains, traders said. It closed in New York at 1.675 marks, down from Wednesday’s 1.680.
The dollar was quoted at 108.18 Japanese yen, down from 108.75 on Wednesday.
The British pound rose $1.488, more expensive than $1.481 on Wednesday.
Meanwhile, on the New York Comex, gold closed at $369.10 an ounce, off 40 cents from Wednesday. Silver closed at $4.374 an ounce, down 7 cents.
Light, sweet crude oil for December delivery sank 28 cents on the New York Mercantile Exchange to $17.37 a barrel.
Market Roundup, D8
