Dow Rockets to Record High
Stocks marched to record highs Thursday as investors, convinced that the economy will continue to grow moderately without a surge in interest rates or inflation, once more rushed in to buy.
The Dow Jones industrial average, which had gained 57.44 points Wednesday, shot up 92.49 points Thursday to close at 5,608.46. It was the biggest one-day rise in terms of points in more than five years, but in percentage terms it has risen more dramatically several times since then, most recently May 31.
The recovery from a four-day sell-off left the blue-chip average above the high of 5,601.23 points set Feb. 13, and gave it a gain of 9.6% so far this year--more than many analysts had projected for all of 1996.
The sharp rebound left market experts almost at a loss for words. After some thinking, Larry Wachtel, a stock market analyst at Prudential Securities, called it a “melt-up.”
The Dow and the overall market was boosted by strong gains in Dow index component International Business Machines, which rose 3 7/8 to a five-year high of 124 1/8 in active trading, Wachtel said.
“The leadership of IBM represents a resurgence of the techs,” he said. “The high-technology stocks wield enormous psychological influence and all day the Dow and the Nasdaq have been neck and neck.”
Bond yields fell back for a second straight day as it gradually recuperated from a four-day rise.
The yield of the Treasury’s main 30-year bond fell to 6.33% from 6.37% late Wednesday.
Thursday’s advance was the biggest advance since Jan. 17, 1991, when the Dow added 114.60 points, or 4.6%. However, the percentage gain was not quite 1.7%.
Few areas of the market were left untouched by the rally. Advancing issues led decliners by 13 to 5 on the New York Stock Exchange, where volume was heavy at 485.45 million shares.
Heavy buying in computer and other technology issues sent the Nasdaq and American Stock Exchange indexes through records set the previous day.
The Nasdaq composite index rose 20.26 points to 1,117.11, its first close above 1,100. The American Stock Exchange’s market value index added 5.06 points to 570.16.
The NYSE’s composite index advanced 5.19 points to 350.85, and the Standard & Poor’s 500-stock index climbed 10.76 points to 658.86. Both came within shooting distance of record highs set Feb. 12.
Investors began the day armed with purchase orders, believing they could use the recent market dip as a buying opportunity.
A rise in bond prices tied to an unemployment report was a further green light.
Computer-driven buy programs helped lift the market in the early going.
The Dow was up more than 50 points in the first hour of trading, prompting the New York Stock Exchange to impose limits on program trading that were left in place through the session’s close.
Bonds yields fell after the Labor Department said first-time claims for unemployment benefits rose by 5,000 last week, although the four-week moving average declined by about that much.
But by the afternoon, stock investors had turned their attention away from the inconclusive jobs report and concentrated on the immense amount of cash that is pouring into stock funds each day.
“You have restless rotation, an ocean of liquidity--all the cliches you can possibly think of to explain what’s going on,” Wachtel said. “The final analysis is that the money managers still have the money coming in.”
They bought safe-haven stocks that generally look attractive if the economy is slowing down: drugs, consumer products, food, utilities. Pfizer rose 1 1/2 to 67 7/8. General Electric rose 1 3/4 to 79 5/8. General Mills added 5/8 to 59 1/4.
The Dow Jones utility average climbed 2.45 points, better than 1%, to 228.69.
But investors also bought more speculative sectors of the market, indicating they are sanguine about more fundamental underpinnings of the market including the economy and corporate earnings.
“The economy has indeed slowed, hit a soft patch,” said Hugh Johnson, First Albany Corp.’s market strategist, “but it looks as though it will strengthen in the second half [of the year] and be on its way to sustainable growth with very low inflation.”
Among market highlights:
* The Dow Jones transportation average, which is viewed as highly cyclical--or responsive to shifts in the economy--surged 43.80 points, or 2.12%, to 2,111.37. The gains were led by a continued advance in airline shares. AMR rose 2 1/4 to 87 5/8.
* Technology shares, another highly cyclical sector, rose as well. On the Big Board, Digital Equipment climbed 4 1/2 to 74 1/4 and Hewlett-Packard advanced 4 3/4 to 103 1/8.
In Nasdaq trading, Intel rose 1 3/4 to 61, Cisco Systems added 2 1/4 to 49 7/16. Microsoft climbed 2 5/8 to 102 1/2 and Sun Microsystems surged 3 3/4 to 51 7/8.
* Retail shares, also cyclical, rose. Sears gained 2 1/8 to 45 3/8, rising for the second day after saying Wednesday that it would sell its 50% interest in the Prodigy online computer service. J.C. Penney shares rose 1 3/8 to 48 5/8.
* Financially sensitive issues, those that tend to rise when interest rates fall, also gained. Citicorp shares rose 7/8 to 77 3/4. Chase climbed 1 1/8 to 72 5/8.
* MARKET BEAT: Stocks are showing no fear. D3
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Relentless Bulls
The flow of money into the stock market has been so strong--and steady--for the last year that blue-chip indexes have barely pulled back. Monthly price changes in the Standard & Poor’s 500 stock index:
Feb. 1996: 3.6%*
* Through Thursday
Source: Bloomberg Business News
