Dow Flies Past 5,500 as Bulls’ Ranks Swell
The 5,500 milestone was toppled easily by a surging Dow Jones industrial average Thursday, as cash continued to pour into the market and investors’ bullish sentiment rose further.
“We’re going to the moon,” gushed Jack Baker, head of trading at Furman Selz Inc.
The Dow leaped 47.33 points to a record 5,539.45 in heavy trading, bringing its year-to-date gain to 422.33 points, or 8.3%--on top of last year’s 33.5% rise.
Buyers again focused on classic multinational growth stocks such as Coca-Cola, Johnson & Johnson and Procter & Gamble, many of which have already risen 50% or more over the last year.
But the story also continued to improve in the broad market, with rising stocks outnumbering losers by 1,343 to 960 on the Big Board, compared with Wednesday’s 1,227-to-1,149 margin.
The Standard & Poor’s 500 index surged 6.14 points to a record 656.07 and the Nasdaq composite index climbed 8.29 points to a record 1,093.17.
William LeFevre, veteran analyst at Ehrenkrantz King Nussbaum, said many investors are abandoning previous concerns about stocks’ levels and are leaping in. “People kept holding back thinking the market was too high at [Dow] 4,000, then 4,500 and then 5,000,” he noted.
He said small investors’ decision to invest record amounts of cash with mutual funds in January is a key reason for the rally: “The funds get a slug of money and then the money has to be put to work.”
That buying is in turn begetting more bullishness. A weekly survey of investment newsletter writers by Investors Intelligence shows 53.8% of the writers now are bullish on stocks, up from 48.7% last week and the highest level since January 1992.
But analysts also point out that soaring bullishness can indicate that eager buyers will soon be depleted of cash, leaving the market vulnerable to a sharp pullback.
Eugene Peroni, chief technical analyst with Janney Montgomery Scott, said he doesn’t see “horrendous excesses” in the market, but he warned that “we can get a 5% to 7% correction at any point. The risk is expanding with this rally.”
In contrast to the stock market, bonds had a fairly dull day. The Treasury sold $12 billion in new 30-year bonds at an average yield of 6.119%, the lowest since the government began regular 30-year bond sales in 1977.
The auction, which wrapped up the Treasury’s $44.5-billion quarterly refinancing this week, didn’t meet with exceptional demand, traders said. Even so, bond yields eased slightly across the board.
With the economy weak and the Federal Reserve Board expected to cut short-term interest rates further, “the underlying view of most people is that they want to own bonds,” said John Burgess, who manages $70 billion in fixed-income securities at Bankers Trust Global Investment Management.
Among Thursday’s highlights:
* In consumer growth stocks, Coke gained 2 1/4 to 80 1/4, J&J; leaped 1 3/4 to 98 3/4, P&G; added 2 1/4 to 86, Merck rose 1 to 70 and Philip Morris surged 1 1/8 to 95 7/8.
Also, Avon jumped 3 1/2 to 86, Gillette rose 1 to 56 1/4, Kellogg surged 2 to 78 7/8 and Colgate-Palmolive soared 3 3/8 to 76 1/8. Colgate reported quarterly earnings slightly ahead of expectations.
The continuing flight into growth stocks reflects a “defensive” move by investors looking for stocks that may hold up well in a weak economy, analysts said.
* Many bank and insurance stocks also surged again. Wells Fargo shot up 5 to 258 1/4, NationsBank gained 3 to 73 1/2, BankAmerica was up 1 1/4 to 71 3/8, Chubb leaped 2 7/8 to 102 7/8 and AIG rose 4 1/8 to 102 3/4.
* On the downside, some industrial names weakened, led by autos. GM fell 1 3/8 to 51 3/8, Ford was off 3/8 to 29 1/2, B.F. Goodrich fell 1 1/8 to 73 1/2 and Union Carbide eased 5/8 to 43 5/8.
But railroad stocks saw fresh interest, with Conrail up 1 3/8 to 72 1/2, Norfolk Southern up 7/8 to 78 3/4 and Union Pacific up 1 to 69.
* Phone utilities gave ground. Nynex led the slide, off 3 3/8 to 55 7/8 as investor expectations for a rumored merger between Nynex and Bell Atlantic cooled. Bell Atlantic dropped 1/2 to 71 7/8. Also falling were Pacific Telesis, off 1 to 31 1/4, and Ameritech, down 1 1/4 to 64 1/4.
Overseas, Tokyo’s Nikkei-225 index rose 174.81 points to 21,118.30, the highest since June 1994. But London’s FTSE-100 index fell 17.7 points to 3,708.4 and Frankfurt’s DAX index was off 15.96 points at 2,430.20.
In Mexico City, the Bolsa index rose 26.71 points to 3,037.54.
