Dow Rebounds 54.30 as Dollar Rises to 7-Week High Against Yen : Markets: Stocks’ gains reflect heavy buying of industrial issues, but trading volume is slow. Federal Reserve meets today.
The U.S. stock market surged again Monday, as investors snapped up shares of industrial firms that could benefit most from an extended economic expansion.
Defying expectations for a continued selloff after last Thursday’s 81.96-point dive, the Dow Jones industrials leaped 54.30 points, or 1.3%, to 4,395.63 in a fairly broad-based rally.
Some analysts attributed the market’s wild swings of the past few sessions to last Friday’s regular monthly expiration of key stock futures and option contracts.
Market volatility often increases around such expirations as investors close out complicated short-term trades.
Still, bullish Wall Streeters said the stocks up the most on Monday--”cyclical” industrial companies--reflected rising investor sentiment that the economy’s current slowdown will mean a longer-lasting expansion.
“The economy’s slowing, but not dramatically,” and that is helping cyclical stocks, said Louis Todd, head of equity trading at J.C. Bradford & Co.
Stocks may also have been boosted by fresh strength in the dollar, which hit a seven-week high against the Japanese yen, closing at 87.33 yen in New York, compared to 86.85 on Friday.
The dollar’s rising trend in recent weeks has allayed fears that the U.S. currency was headed for a meltdown that could disrupt world financial markets.
Despite the bull market’s apparent revival, however, some analysts noted that trading volume was low Monday, with just 286 million shares changing hands on the New York Stock Exchange. And winners topped losers by 13 to 9 on the Big Board, not an exceptionally wide margin given the Dow’s gain.
Also, broader market indexes rose much less than the Dow, which surged more than 60 points before falling back a bit. The NYSE composite, for example, gained 0.7% and the Russell 2,000 index of smaller stocks added just 0.4%.
Some market “technicians” say it will be important for stocks to sustain this rebound, given the severity of last Thursday’s plunge. With so many investors sitting on huge paper profits this year, failure to rise above last week’s record highs in the next few sessions could shake confidence and cause renewed profit taking, some contend.
Whether options-related or not, “it didn’t take much to set off” last Thursday’s big Dow decline, noted Jim Bohan, analyst at Merrill Lynch & Co. in New York.
But many bulls say Monday’s rally was more evidence that there are hordes of investors still clamoring to buy stocks on the assumption that an economic “soft landing” will keep interest rates down while corporate profits continue to advance.
In one very bullish vote of confidence, well-known brokerage Lehman Bros. on Monday advised institutional clients to raise their stock holdings to 55% of total assets, up from 40% currently, while reducing cash holdings to 15% from 30%. The brokerage advised keeping bond holdings at 30% of assets.
Meanwhile, the bond market was relatively calm ahead of today’s Federal Reserve Board meeting. The 30-year Treasury bond yield finished at 6.92%, the same as on Friday.
The Fed is expected to leave short-term interest rates unchanged, on the assumption that current rate levels are adequate to keep the economy on a more moderate growth track.
But some economists say that until the Fed decides to cut short rates, long-term bond yields may not be able to fall any further. Their steep decline this year has helped power stocks higher.
Among Monday’s highlights:
* Industrial issues leading the market charge included International Paper, up 2 to 80 3/4; Caterpillar, up 2 3/4 to 62 1/2; Deere, up 4 to 89 3/4; Black & Decker, up 1 1/4 to 31 7/8; Cincinnati Milacron, up 1 1/8 to 27 1/8; Eaton, up 2 3/8 to 58 3/8, and Parker-Hannifin, up 1 1/4 to 54 3/8.
* Tech stocks, this year’s stars, continued to rocket. Intel soared 2 5/8 to 114, Sun Microsystems surged 1 7/8 to 46 7/8, Novell gained 11/16 to 22 1/4, Digital Equipment leaped 2 to 48 7/8, IBM jumped 1 7/8 to 95 1/4, EMC gained 2 1/8 to 22 1/8 and International Rectifier added 1 1/8 to 28 1/2.
* Aerospace stocks gained on expectations that United Airlines will make a large jet purchase this year. Boeing soared 1 1/8 to 56 1/4, McDonnell Douglas jumped 2 1/4 to 71 7/8, United Technologies zoomed 1 5/8 to 74 1/2 and Rockwell was up 1 3/4 to 45.
* Brokerage stocks rallied with the broad market. Morgan Stanley shot up 2 to 76 5/8, Charles Schwab added 7/8 to 35 1/4 and Merrill Lynch rose 1 1/4 to 47.
* On the downside, Centocor slumped 2 5/8 to 13 5/8 on disappointment that it will continue the trial of its anti-clotting drug Reopro. Investors had been hoping for a quick end to the study, leading to the drug’s approval.
In foreign markets, Mexico City’s Bolsa index soared 78.62 points, or 3.9%, to 2,090.88 on the heels of Wall Street’s rally.
But Tokyo’s troubled market took another spill, with the Nikkei 225-stock index plunging 351.73 points, or 2.2%, to 15,789.12, the first close below 16,000 in six weeks.
