Dow Just Shy of Record High
The bulls continued to regain control on Wall Street on Monday, as a tame bond market and falling gold prices reinvigorated stock buyers.
Despite another slide in many technology issues, the Dow Jones industrial average jumped 63.59 points to 5,600.15 as investors shifted to many classic consumer growth stocks. Adding to Friday’s 50.94-point Dow gain, the blue-chip index now is just slightly below its record high of 5,630.49 set Feb. 23.
“Everything’s coming up roses, basically,” said Donald Smith, president of his own investment firm with about $950 million in assets. With interest rates low by historic standards and perhaps headed lower, “the economy is going to either keep growing or get stronger,” Smith said.
Indeed, while fresh economic data Monday confirmed that consumer spending slumped in January--largely because of bad Eastern weather--many analysts believe that the Federal Reserve Board’s policy of easier credit will lead to better growth later this year.
And in the near term, the economy’s weakness is expected to prompt more Fed cuts in short-term rates, potentially good for stocks and bonds.
As the Dow climbs higher, analysts note that investors must adjust to seeing much bigger daily point moves. Already this year, the Dow’s daily gain or loss has exceeded 50 points on 15 days--more than in all of 1995, when 50-point moves occurred on 13 days.
But at 5,600, a 50-point move is a 0.9% change in the index. When the Dow was at 4,000 a year ago, a 50-point move was a 1.3% change.
Even though the big point changes are less significant, many analysts say the stock market has indeed become more volatile this year--a function of the bond market’s wild mood swings.
Bond yields, which had plunged on Friday after soaring in recent weeks, fell further on Monday. The benchmark 30-year Treasury bond yield dropped to 6.33% from 6.36% Friday. It had peaked at 6.47% last Thursday.
Withering gold prices helped the bond market by toning down recent inflation worries. Gold had rocketed to a six-year high in January, and some analysts suggested the metal’s price was foretelling higher inflation.
But gold has tumbled in recent weeks, and on Monday the April futures contract on the Comex in New York slid $5 to $395.20 an ounce, the lowest since Jan. 2. (Gold price chart, D13.)
Traders “were getting impatient” as gold failed to sustain its January rally, said Greg Drury, director of precious metals at Mitsui & Co. “They said, ‘I’ll take my money and go play somewhere else.’ ”
On Wall Street, falling yields and weakness in gold were all that was needed to push investors back into stocks.
The market’s advance was broad despite continued selling of many tech issues. On the New York Stock Exchange winners outnumbered losers 1,625 to 771. Winners even had a slight edge on Nasdaq, which is dominated by tech issues.
The Standard & Poor’s 500 blue-chip index jumped 1%, while the Russell 2,000 index of smaller stocks rose nearly 0.5%.
The Dow, in a steady advance all day, was up more than 90 points before pulling back in late trading.
“Stocks have a lot of momentum. The wind is at their backs,” said Charles Lieberman, research chief at Chemical Securities. Share prices will continue to gain, “until something comes along to jeopardize or undercut” the view that inflation is under control and interest rates are headed lower, he said.
Among Monday’s highlights:
* Classic consumer growth stocks, which could continue to thrive in a moderately growing economy, returned to favor after recent profit taking.
Coca-Cola jumped 1 7/8 to 84, Philip Morris rose 1 1/2 to 101 1/2, Pfizer surged 1 5/8 to 68 1/8, Amgen added 1 1/4 to 61 1/4, Reebok gained 1 3/8 to 30 3/8 and PepsiCo leaped 1 7/8 to 66.
* Retail stocks also soared. Tony Dwyer, market strategist at Josephthal Lyon & Ross, said the retailers were showing strength “on the anticipation that there will be some pickup in the economy and the belief that . . . people will have money to spend.”
Home Depot surged 3 3/8 to 47 5/8, Federated Department Stores rose 1 7/8 to 33 1/8, Dayton Hudson leaped 2 5/8 and 79 7/8 and Gap soared 2 5/8 to 55 1/2.
* Some industrial issues also rose on optimism about the economy. United Technologies soared 3 7/8 to 110 5/8, Goodrich gained 1 3/8 to 77 5/8 and Monsanto jumped 2 1/2 to 137 1/2.
* On the downside, some of the money that flowed into consumer and industrial issues appeared to come out of tech issues, which sank for a second session on fears about new computer price wars.
Personal computer leader Compaq, which dove 8 7/8 on Friday after saying it would sacrifice profit margins for market share in the near term, fell 1 3/4 to 40 on Monday.
Other losers included IBM, down 2 to 116; Digital Equipment, down 3 1/2 to 61; International Rectifier, down 2 3/8 to 17; Seagate, off 2 7/8 to 58 3/4; Cabletron Systems, down 2 1/8 to 69 3/4; and CyberCash, down 6 to 40 1/2.
* BankAmerica hit a new record high of 75 1/2, up 1 1/4, as the banking giant announced a $2-billion stock buyback program. The new program replaces one announced in February 1995 and essentially adds $1.15 billion to the amount to be repurchased by the end of 1997.
Other bank and financial issues were mostly higher as interest rates fell.
In Mexico City, stocks fell for the fifth time in the last six sessions amid concern rising interest rates will hurt company earnings. The Bolsa index fell 12.67 points, or 0.44%, to 2879.73.
In commodities trading, other precious metal prices fell with gold. May silver futures lost 12.3 cents to $5.42 an ounce.
Market Roundup, D12
* SLUGGISH ECONOMY: Consumer spending sees its biggest drop in more than three years, but bad weather played a role. D2
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Dow’s Big Days
Moves of 50 points or more are becoming commonplace for the Dow Jones industrial average. Number of days the Dow moved 50 or more, annually and so far in 1996.
1992: 7
1993: 4
1994: 15
1995: 13
1996: 15
