Dow Soars in Buying Frenzy
Panic buying Thursday drove stocks to record heights, as investors shook off interest rate and political worries and once again mobbed the market.
The Dow Jones industrial average rocketed 92.49 points, or 1.7%, to a new high of 5,608.46, in the biggest one-day point gain since January 1991.
The broad market also advanced powerfully, taking many professionals by surprise and leaving most of them short of fresh superlatives with which to describe this seemingly relentless advance. “I’ve never seen anything like it, and I don’t know when it will stop,” said Richard Scarlatta, a 20-year market veteran at Sutton Financial Services in Chicago.
Analysts said the trigger for Thursday’s rally was another slight easing in bond yields, as Wall Street digested Federal Reserve Board Chairman Alan Greenspan’s testimony this week before Congress. Bond yields had soared Tuesday as Greenspan seemed to suggest the economy didn’t need lower interest rates to continue growing. On Wednesday, the Fed chief backtracked somewhat, appearing to leave the door open for more Fed rate cuts.
As yields edged lower Thursday, the stock market lifted off. “The bond market stabilized, and that’s all you really needed,” said Hugh Johnson, market strategist at brokerage First Albany in New York.
Also forgotten were political concerns about the rise of Republican firebrand Patrick J. Buchanan and his anti-business rhetoric. Many investment pros doubt Buchanan’s presidential campaign will go far.
With Thursday’s stock surge, the Dow completely recouped the 2.5% it lost between Feb. 13 and Tuesday, continuing the market’s pattern of the last year: Every dip has been a “buying opportunity,” in Wall Street lingo.
Indeed, the blue-chip Standard & Poor’s 500 stock index has risen in 12 of the last 14 months, and the two months in which it declined saw only minor drops.
The steadiness with which stocks have risen reflects the mountain of money still fighting to get into the market, from mutual fund investors and from institutions, analysts say.
With interest rates relatively low and the economy still growing, “there is an immense amount of money out there and nowhere to put it” but stocks, says Len Hefter, veteran trader at brokerage Jefferies & Co. in Dallas.
Yet in January and early February, more traders tried to fight stocks’ advance, Hefter notes: “Short interest” on the New York Stock Exchange, the number of shares borrowed and sold by bearish traders expecting prices to drop, zoomed to a record 2.13 billion shares as of Feb. 15, up 8.1% from Jan. 15, according to an NYSE report issued Thursday.
Ironically, Thursday’s market rally may have been powered in part by those short sellers. As stocks rise, the short sellers are forced to buy stocks in the open market to close out their losing bets--thus adding momentum to the advance.
Even so, some analysts warn that signs of dangerous speculation are multiplying in the market. For one, interest in smaller stocks is heating up. The Nasdaq composite index of mostly smaller issues rose more than the Dow on Thursday, leaping 20.26 points, or 1.9%, to a record 1,117.11.
Also, computerized program trading activity last week accounted for 20.1% of NYSE volume, the highest since May 1992. The figure was swollen by the monthly expiration of certain stock option contracts (some program traders play stocks against stock-index derivative securities). Nonetheless, a surge in program trading can indicate a rise in speculative activity, including frenzied buying of derivative securities in an effort to quickly get aboard the market.
Bullish analysts, while acknowledging that the market may be getting frothy, note that there is no way to judge how much froth is too much. For now, “there’s nothing in the current picture that’s going to dissuade people from putting more money into stocks and stock funds,” says Johnson.
Among Thursday’s highlights:
* The bulls’ control of the market showed as winners topped losers 1,768 to 682 on the NYSE in heavy trading of 495 million shares.
Although the Dow’s point gain was its biggest since the 114.60 rise of Jan. 17, 1991, Thursday’s percentage rise of 1.7% was not extraordinary by recent standards, experts noted.
* Technology stocks continued to resurge, leading the market higher. IBM soared 3 7/8 to 124 1/8, Digital Equipment gained 4 1/2 to 74 1/4, Microsoft was up 2 5/8 to 102 1/2 and Intel gained 1 3/4 to 61.
* Transportation stocks, including airline and rail issues, also rose strongly, which analysts said represents a bet on a growing economy. The Dow transports index jumped 2.1% to a record 2,111.37.
* Industrial stocks advancing included Chrysler, up 2 3/8 to 54 3/8; Emerson Electric, up 2 1/2 to 83 1/4; and Caterpillar, up 1 3/8 to 70 1/4.
* Buyers also hunted for beaten-down retail stocks. Sears rose 2 to 45 1/4, May Department Stores gained 2 1/8 to 47 1/2 and Nordstrom jumped 1 3/4 to 42 1/2.
In the bond market, yields closed just slightly lower on longer-term issues, with the 30-year Treasury bond yield ending at 6.33%, down from 6.37% on Wednesday but still well above the 6.03% of Feb. 13.
Shorter-term yields, however, fell more convincingly. The two-year T-note yield dropped to 5.08% from 5.19%.
* MARKET BEAT: This is the No Fear market. 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
