Dow Rockets 86.46 Points on Dollar Gains, Economic News : Markets: Broad-based buying takes blue-chip index to another record high. Analysts cite optimism for a ‘soft landing.’
Wall Street’s bull market roared back to life Wednesday as investors seized upon a rebounding dollar and some less-pessimistic economic data to pour into stocks again.
The Dow Jones industrial average rocketed to close up 86.46 points, or 2%, at a record 4,465.14, surpassing the previous record of 4,438.16 set May 24. The broader market also rallied in active trading.
Although analysts saw the dollar’s turnaround as a spark for the rise, many investment pros say the stock market’s explosiveness is a function of the hordes of investors still waiting to jump into this year’s rally--which has pulled the Dow up 630.70 points, or 16.4%, since Jan. 1.
“I think people are giving up on the idea of a correction [pullback] in stocks” that would allow them to buy at significantly lower prices, said Philip Roth, a market analyst at Dean Witter Reynolds in New York.
William LeFevre, veteran analyst at Ehrenkrantz King Nussbaum in New York, noted that the bull market has withstood several shocks in recent weeks, including a surprise 81.96-point selloff on May 18 and last Friday’s announcement by market bellwether Philip Morris Cos. of a major cigarette recall.
“A market that ignores bad news is destined to go higher,” LeFevre said.
On Wednesday, analysts said the market kicked off trading under the positive influence of Tuesday’s steep decline in bond yields. When the dollar began to surge--boosted by unexpected intervention by the Federal Reserve Bank of New York and several European central banks--stocks were carried up with it.
Some Wall Streeters have argued that a sustained turnaround in the dollar, which has plunged against the Japanese yen and German mark this year, is needed to encourage new investment by foreigners in U.S. stocks and bonds.
But others note that stock prices have been surging, and bond yields tumbling, even in the face of the dollar’s problems this year.
For most U.S. investors, the decision to buy stocks or bonds has been influenced not by the dollar but by the economy’s slowing trend and expectations for a “soft landing,” meaning modest growth with low inflation.
The soft-landing camp was probably enthused by Wednesday’s economic reports, some analysts said. The government revised its estimate of first-quarter real gross domestic product growth to a 2.7% annualized rate from the previous 2.8% estimate.
More important, the downward revision stemmed from a change in the estimate of business inventory growth in the quarter. The government said inventories grew less rapidly than originally believed--which could mean that production cutbacks in the current quarter won’t have to be as severe.
That could be good news for corporate profits, especially for industrial firms that would be most affected by economic weakness.
Even so, Wednesday’s rally was led by so-called defensive stocks--drug, food and consumer product issues whose earnings growth tends to be more predictable and less affected by economic slowdowns.
Those stocks helped power the Dow to its largest one-day point gain since it rose 88.10 points on Dec. 23, 1991.
The broader market was also sharply higher. Advancing issues led decliners by more than 2 to 1 on the New York Stock Exchange, where volume was 366 million shares--active, but well below activity on other big days this year.
The NYSE restricted computerized program trading late in the day after the Dow rose more than 50 points, but that failed to slow the advance. Some traders said that was an indication that fundamental demand for stocks--not trading games--is pushing the bull market.
Meanwhile, the bond market was mixed after yields plummeted Tuesday. The yield on the Treasury’s 30-year bond eased to a new 15-month low of 6.64% from 6.66% on Tuesday, but yields were unchanged or slightly higher on shorter-term securities.
Among Wednesday’s highlights:
* Among classic consumer growth stocks leading the Dow higher were Procter & Gamble, up 2 1/4 to 71 7/8; Philip Morris, up 2 1/8 to 72 7/8; Merck, up 1 3/4 to 47, and Coca-Cola, up 1 1/2 to 61 5/8.
* Other drug and food stocks rising sharply included Johnson & Johnson, up 2 to 66 1/8; Lilly, up 1 1/2 to 74 5/8; Amgen, up 2 3/8 to 72 1/2; CPC International, up 2 3/4 to 60 3/4, and Kellogg, up 1 3/8 to 67 1/8.
* Among industrial issues, buyers chased DuPont, up 2 to 67 7/8; GM, up 1 3/4 to 48; 3M, up 2 to 60, and Caterpillar, up 1 7/8 to 60 1/4.
* Transportation issues also surged. The Dow transports index jumped 2.2% to 1,662.99.
* Technology stocks were mixed. Investors continued to take profits in the group early in the session, keying off Tuesday’s slump in many of the stocks. But buyers returned later in the day.
By the close, IBM was up just 3/8 at 93 and Lotus was off 1 at 30 1/2, but Micron Technology surged 3 to 44 5/8, Intel added 1 3/4 to 112 1/4 and Motorola gained 1 to 59 7/8.
* On the downside, Roberts Pharmaceuticals tumbled 4 1/8 to 19 3/8 after the company said its second-quarter results would be below Wall Street expectations.
Overseas, the Tokyo stock market ended with hefty losses but was saved from registering a new closing low for the year thanks to arbitrage-linked buying. The 225-share Nikkei average lost 326.18 points to 15,436.79.
London’s FTSE-100 average rose 9.5 points to 3,319.4. Frankfurt’s 30-share DAX average ended 4.52 points higher at 2,092.17.
Mexico’s Bolsa index added 6.41 points to close at 1,945.13.
* COORDINATED INTERVENTION
The Fed and European central banks buy dollars. D3
