Stock Market All Smiles Again
The stock market on Monday finished shedding the remains of its recent sell-off, as optimism about economic growth and low inflation helped the Dow Jones industrial average post its fifth-biggest point gain ever and set a record high.
The average of 30 industrial stocks soared 98.63 points, or 1.8%, to 5,683.60, easily surpassing its previous record high of 5,642.42 set March 5.
The gain followed a 110.55-point surge on March 11, the first trading day after the Dow lost 171.24 points when an unexpectedly strong jobs report triggered fears of inflation and higher interest rates. After last week’s cumulative gain of 114 points, the Monday rally more than erased the plunge on March 8.
The blue-chip average would have risen even higher except that one of its key stocks, Philip Morris, took another drubbing as Wall Street grew increasingly worried about the prospect of more health-damage claims against the tobacco industry.
The industry, still reeling from Liggett Group’s settlement of smoking cases last week, suffered another blow Monday when the U.S. Food and Drug Administration released new whistle-blower allegations that Philip Morris controls nicotine levels in cigarettes.
Philip Morris had no immediate comment, though it noted that it has never paid damages in previous smoking suits. But the company’s stock tumbled 4 1/8 to 91 1/4 in trading of nearly 13 million shares, after sliding last week as well.
Overall, investors’ ability to quickly set aside the economic concerns that led to the stock market’s sharp sell-off March 8--and to display renewed confidence about the outlook for the economy, inflation and stock prices--caught some analysts by surprise.
“It’s quite extraordinary in the way the market has acted” since the Dow’s 171-point drop, said A. Marshall Acuff Jr., chief portfolio strategist at Smith Barney Inc. in New York.
That plunge was sparked by a February jobs report that indicated the economy was growing much faster than many thought. The report--which raised fears that an overheating economy would lift inflation and interest rates--first pummeled the bond market and then the stock market.
Analysts had expected stocks to bounce back somewhat from that sudden fall, but its ability to quickly resume a broad-based rally “is an added bonus,” particularly because no important economic news was released Monday, Acuff said.
Indeed, gainers overwhelmed losers by more than 2 to 1 on the New York Stock Exchange, and investors aggressively bid up groups of stocks that are seen as benefiting from a stronger economy, such as utilities, transportation stocks and technology issues.
“Investors are deciding the economy is growing at just the right pace--strong enough to keep corporate profit growth intact but not so strong that inflation and interest rates will rise dramatically,” said Alan Skrainka, chief market strategist at the St. Louis-based brokerage Edward D. Jones & Co.
Big Board volume totaled 436.6 million shares, down from 530.0 million on Friday, when activity was fueled by the expiration of stock options and stock index futures.
Broad market indexes rose, but closed short of record highs. Standard & Poor’s 500-stock index rose 11.22 points to 652.65, while the Nasdaq composite index rose 14.83 points to 1,114.42.
In the credit markets, the Treasury’s bellwether 30-year bond had a fairly quiet day. Its yield fell to 6.70% from 6.73% on Friday. Yields on the Treasury’s 10-year notes and one-year bills also edged lower.
Bond yields fell amid mounting consensus that recent economic data, including last Friday’s release of a surge in industrial production and the big gain in new jobs announced March 8, were a falsely enthusiastic reading on the strength of the economy.
Among Monday’s highlights:
* The release of the allegations against Philip Morris sparked a sell-off of other tobacco stocks. RJR Nabisco Holdings fell 2 1/4 to 31 1/8, UST slipped 3/8 to 32 3/4, Brooke Group fell 1/2 to 8 3/4 and Loews fell 4 1/8 to 74 5/8.
* Lower bond yields helped lift prices of stocks sensitive to changing lending costs. Federal National Mortgage rose 1 1/8 to 32 1/2, BankAmerica gained 1 to 74 3/8 and J.P. Morgan jumped 2 1/2 to 82 1/2.
* The technology group also scored big gains. Dow component International Business Machines rose 4 3/4 to 124 5/8, Intel added 3/8 to 59 1/2, Digital Equipment soared 4 7/8 to 69 1/4, Microsoft gained 2 7/8 to 105 1/4 and Oracle climbed 1 3/8 to 50 1/4.
* Walt Disney fell 2 3/8 to 66 7/8 after Dean Witter Reynolds downgraded the stock to “neutral” from “buy” and lowered its earnings estimate for the current fiscal year to $2.35 a share from $2.55. In the year ended Sept. 30, Disney earned $2.60.
* Boeing rose 4 3/4 to 85 3/8 after it said its commercial airplane group will be producing 27 jetliners per month by the second quarter of 1997, up from 18 1/2 currently.
* Iomega soared 4 1/8 to 23 3/4, or 21%, in heavy trading after a brokerage firm initiated coverage of the disk drive maker with a “buy” recommendation.
Stocks also generally rose in foreign trading. London’s FTSE-100 index gained 24.80 points to 3,669.60, and the DAX 30-share index in Frankfurt rose 4.93 points to 2,463.16. The Nikkei 225-share index in Tokyo rose 94.28 to 20,285.13, and Mexico City’s Bolsa index advanced 30.22 points to 2,874.32.
The dollar, meanwhile, rose against most major currencies in sluggish trading. The greenback was quoted at 105.99 Japanese yen in late New York activity, up from 105.93 on Friday, and at 1.4753 German marks, up from 1.4725.
Times wire services contributed to this report.
* PHILIP MORRIS UNDER FIRE
Former executives say firm manipulated nicotine levels. A1
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Record High
Dow Jones Industrial Average, half-hourly closes:
4 p.m.: 5,683.60
