Rally Boosts Dow 50; Analysts See 6,000
Blue chip stocks added to Friday’s rally with a fresh gain Monday, taking the Dow Jones industrial average up 50.68 points to a record 5,889.20--less than 2% from the 6,000 mark.
Many analysts continued to express surprise at the market’s resurgence, which appeared to be rooted in investors’ expectations for a prolonged U.S. economic expansion.
“It’s pretty amazing. It’s got 6,000 written all over it,” said Jim Benning, a trader at BT Brokerage.
The broad market also closed higher, though below its best levels of the day. Trading was active. Many foreign stock markets also soared, with key indexes up powerfully in Frankfurt, Singapore and Buenos Aires, among others.
The Dow’s latest climb to record heights began last Friday, after the government reported benign inflation data and lower-than-expected retail sales in August.
Those reports appeared to significantly reduce the odds of an interest-rate hike by the Federal Reserve Board when it meets a week from today.
The Fed had been expected to raise short-term rates to slow the economy’s pace and thus keep inflation subdued. But with Friday’s reports, and more data Monday, experts said the economy seem to be slowing on its own.
The government said Monday that retail inventories of goods jumped sharply in July. Coupled with reports of slow August sales, the data suggested that the economy’s hefty pace of production could slow in coming months to allow sales to catch up with inventories.
“It seems increasingly clear the Fed won’t do anything,” said Peter Canelo, chief investment strategist at brokerage Dean Witter. “That means [corporate] earnings are not at risk of a hike in interest rates and opens up a window of opportunity for stocks until the election.”
Still, Monday’s stock rally was less robust than Friday’s, when the Dow rose 66.58 points. The Dow briefly traded above 5,900 Monday but couldn’t hold. The Nasdaq composite index of mostly smaller stocks, up 22.86 points Friday, added just 5.29 points Monday to 1,193.96, fading in late afternoon.
Winners topped losers by 14 to 10 on the Big Board Monday and had a narrower edge on Nasdaq.
Also, the bond market on Monday failed to add much to Friday’s rally, when the 30-year Treasury bond yield fell to 6.95% from 7.07% Thursday. The yield closed at 6.94% Monday.
“While things look pretty terrific right now [for bonds] we have factored in a lot of the good news,” said Richard Berner, chief economist at Mellon Bank in Pittsburgh.
Although many Wall Streeters concede it would be inherently good for stocks if the economic expansion can be slowed and stretched out, some wonder if investors are prepared for a continuing slowdown in corporate earnings growth.
Many analysts expect blue-chip earnings to rise 8% to 10% this year, after surging for the past three years. Strong growth in 1997 is even more suspect.
“We’ve been in a period of economic expansion for more than five years,” said Franklin Morton, analyst at Ariel Capital Management in Chicago. “We’re getting closer to the end of the cycle,” and earnings gains will likely harder to come by.
Nonetheless, even with weaker earnings growth stocks are likely to remain the asset of choice for most investors, experts say. Closing above 6,000 could provide a psychological boost, some say.
The Dow’s first close above 5,000 was on Nov. 21 of last year, just nine months after the index first closed above the 4,000 mark.
Among Monday’s highlights:
* Industrial issues that would benefit from a prolonged expansion led the rally. Winners included Alcoa, up 1 1/2 to 63 1/2; DuPont, up 1 to 87; International Paper, up 1 5/8 to 43 3/4; United Technologies, up 3 1/4 to 121; Dover, up 1 1/2 to 45 5/8; and TRW, up 3 7/8 to 101 1/2.
* Technology stocks rose strongly for a second session. Apple jumped 1 3/8 to 22 3/8, Cadence Design surged 2 3/8 to 36, Micron Technology leaped 2 3/4 to 26 1/2, Cabletron Systems advanced 4 3/4 to 68 7/8 and Netscape Communications surged 4 5/8 to 43 3/8.
Computer chip giant Intel, which gained 1/2 to 88 5/8, provided more good news after the market closed by projecting higher-than-expected sales in the current quarter.
* Nike Class B shares added 2 3/8 to a record 121 5/8 after it reported a 24% jump in quarterly profit. The company also announced a 2-for-1 stock split.
* On the downside, telecom equipment maker Glenayre plummeted 40%, or 13 1/4, to 20. The firm warned of an earnings shortfall for the third quarter.
* PepsiCo also continued to weaken on earnings concerns. It fell 1 1/4 to 28 5/8. Archrival Coca-Cola added 1/8 to 53 1/8.
In foreign trading, stocks hit record highs in Frankfurt and in London, buoyed by Wall Street’s gains. In Hong Kong the Hang Seng index surged 1.8% to 11,567, and in Buenos Aires the Merval index gained 1.2% to 547.21.
In commodity trading, grain prices fell sharply in Chicago as weather forecasts pointed to better conditions for maturing corn and soybeans in the Midwest.
Market Roundup, D10
