Dow Makes a Dash for 4,000 Level : Markets: Hopes for slowing economic growth and no further interest-rate hikes push the index to a record close of 3,986.17.
Wall Street’s bulls made a run at history Wednesday but came up slightly short.
Spurred by growing sentiment that interest rates may have topped out, the Dow Jones industrial average surged toward the 4,000 mark, only to fade near the market’s close.
The Dow still closed at a record 3,986.17, up 27.92 points, finally surpassing the old peak of 3,978.36 set on Jan. 31, 1994.
The rally, the latest stage of a broad market advance that began in mid-December, was fueled by fresh signs that the U.S. economy is slowing to a more sustainable growth pace. The Federal Reserve Board said Wednesday that factory output rose 0.4% in January, half December’s rate.
That news overshadowed a more troubling report showing a higher-than-expected rise in January consumer inflation.
Investors who have poured into stocks over the past two months are betting that the economy will slow enough to preclude further interest rate hikes by the Fed--but not enough to seriously damage corporate earnings. Some analysts say the stock market isn’t yet through celebrating the possibility that rates have peaked.
“I think this rally will go a little further,” said Stan Nabi, chief investment officer at Bessemer Trust Co. in New York. “There’s a consensus building that the Fed is not going to be much more punitive” with rate increases, after boosting short-term rates by three percentage points over the past 12 months.
While some Wall Street traders expressed disappointment that the Dow couldn’t top the 4,000 mark--a level of no particular fundamental importance, but one with significant psychological overtones--many suggested that the blue-chip index is poised to crack 4,000 soon.
“I’m usually wearing a bear hat, but I’m bullish now,” one New York trader said, reflecting on a hectic session that saw a heavy 379 million shares trade on the New York Stock Exchange. Rising stocks outnumbered losers by 2 to 1 on the Big Board.
The Dow got within 2 points of 4,000 in afternoon trading, but fell back in profit-taking, traders said.
The stock market’s rally followed another sharp decline in longer-term bond yields. Though the January inflation report caused yields to tick up in the morning, the factory output report brought buyers rushing back into bonds at midday.
At the close, the yield on the U.S. Treasury’s bellwether 30-year bond was at a new five-month low of 7.56%, down from 7.59% on Tuesday.
Among shorter-term bonds, the 2-year Treasury note yield fell to 7.10% from 7.17% on Tuesday.
Analysts noted that investors have shown an increasing willingness to focus on economic reports that confirm a slowdown in business activity, while ignoring other data that is less positive, such as Wednesday’s consumer inflation report.
Although that attitude has been a necessary ingredient for the markets’ rallies in recent months, some investment strategists caution that speculative fever on Wall Street may be reaching dangerous levels.
“I think this action suggests that investors are getting too optimistic,” warns James Solloway, research director at Argus Research in New York. He notes that the Standard & Poor’s 500 stock index, which rose 1.99 points to a record 484.54 on Wednesday, has gained 8.8% since mid-December--almost straight up.
Others point to the wild receptions given some new stock offerings in recent days. On Tuesday, for example, Oak Technology went public at $14 a share, and the stock has since rocketed to $23.50 on Nasdaq. The company makes semiconductors for multimedia uses.
But Hugh Johnson, market strategist at First Albany Corp., said investors who believe that interest rates have peaked--and who expect that the economy will achieve the hoped-for “soft landing” of slower growth but no recession--may be undeterred from piling back into stocks.
“The message of the markets is we’re headed toward a perfect world,” Johnson said.
Among Wednesday’s highlights.
* Some beaten-down industrial stocks led the rally, on hopes for a more sustainable economic expansion that avoids the threat of recession.
Rail giant Conrail surged 2 to 56 1/4, GM gained 1 to 41 1/2, Kennametal rose 1 1/8 to 28, Allied Signal added 3/4 to 38 7/8, Dupont was up 3/4 to 55 5/8 and International Paper rose 1 1/8 to 77 7/8.
* Many technology issues also advanced. Intel rose 1 1/4 to a record high 79 3/4, Oracle jumped 1 5/8 to 45 3/4, BMC Software surged 1 3/8 to 59, Electronic Arts added 3/4 to 23 and Motorola inched up 1/4 to 61 3/4.
Also, semiconductor-equipment maker Applied Materials rose 2 1/4 to 47 after posting a sharp rise in quarterly earnings.
* Financial stocks advancing as bond yields declined included Morgan Stanley, up 1 1/2 to 67 1/8; Dean Witter, up 1 1/8 to 41; Union Bank, up 3/4 to 33 3/4, and SunAmerica, up 3/4 to 42 7/8.
* Energy-related stocks helped support the market’s advance. Arco gained 1 1/2 to 107 1/8, KN Energy shot up 1 5/8 to 22, Exxon rose 1/2 to 63 3/8 and Western Atlas was up 3/4 to 37.
* In the health-care area, WellPoint Health Networks soared 4 to 32 5/8. The Southland health-care services company said it is reviewing takeover proposals by five firms, including Kohlberg, Kravis Roberts & Co.
But other health-care issues were mixed. Some drug stocks, which had been strong recently, gave ground. Warner Lambert lost 1/2 to 78 1/8, Schering-Plough dipped 1 1/4 to 76 5/8 and Johnson & Johnson was off 1/2 to 56 1/2.
* Latin American stocks traded in the U.S. were broadly lower as the beleaguered Mexican, Brazilian and Argentine markets took another tumble. In Mexico City, the Bolsa index slumped 123.08 points to 1,798.00 as the peso dove again.
On the NYSE, Telmex plunged 2 1/8 to a 52-week low of 29 1/2. Other losers included Brazil Fund, off 3/8 to 25 3/8; Argentina Fund, down 3/8 to 10 1/4; Grupo Televisa, down 1 5/8 to 18 1/2; Coca-Cola Femsa, off 7/8 to 15 3/8; and Chile Fund, which sank 1 5/8 to 42 5/8.
Stocks also posted losses in Tokyo, with the 225-share share Nikkei index losing 147.47 points to end at 17,991.00.
But in Hong Kong, the Hang Seng index rebounded 240.47 points to 8,103.14.
In Frankfurt, the 30-share DAX average closed up 1.80 points at 2,135.04, while in London, the Financial Times 100-share average closed at 3074.9, up 3.6 points.
Meanwhile, the dollar finished little changed against key currencies in New York, as traders focused on Mexico’s financial woes and shrugged off the stock market’s rally.
The dollar was quoted at 1.509 German marks, up from 1.5087 late Tuesday. The U.S. currency also closed at 98.35 Japanese yen, down from 98.52.
Market Roundup, D6
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Consumer Price Index
Percent change from previous month, seasonally adjusted: January, 1995: 0.3%
Source: Labor Department
Interest Rates:
30-year T-Bond: 7.56%
1-year T-Bill: 6.63%
* SLOWER ECONOMY: Consumer prices jumped but output growth slowed. D3
