Another Dow Milestone : Broader Measures Also Set Records; Bonds Shake Off Slump
The Dow Jones industrial average closed above 7,000 points for the first time Thursday as the stock market rode a wave of investor confidence based on low interest rates and noninflationary economic growth.
The Dow ended up 60.81 points, or 0.87%, at an all-time high of 7,022.44, beating the previous record set just Wednesday. The rally capped a breathtaking run that has added 1,000 points to the blue-chip index in four months.
Broader measures also posted big gains, with the Standard & Poor’s 500 list and the New York Stock Exchange composite index closing at record highs for the third straight session.
Early in the session, the Dow staged a series of brief forays above 7,000 but failed to mount a serious charge until the recently dormant bond market sprang to life.
“This market is interpreting everything positively right now,” said Charlie Crane, director of research at Spears Benzak Salomon & Farrell. “ . . . All of a sudden the bond market got its legs, and pretty soon stocks were dancing.”
The bond rally, which began just after the U.S. Treasury sold $10 billion in 30-year bonds in a quarterly auction, lifted the bellwether 30-year Treasury bond nearly a full point, which reduced its yield to 6.62% from 6.70% on Wednesday.
The bond market broke out of its slump amid signs that consumer demand may be continuing at a modest enough pace to keep inflation under control.
The Commerce Department reported Thursday morning that retail sales rose a moderate 0.6% in January. The report also revealed that December sales proved more disappointing than previously reported, rising an anemic 0.3%.
The report was the latest in a series of economic readings that have helped calm recent worries that an acceleration in the economy late last year would aggravate inflationary pressures such as rising wages, which have a big impact on production costs and prices.
Federal Reserve Board officials, who last week decided not to raise the central bank’s key interest rates as insurance against inflation, will likely pay close attention to today’s key report on wholesale price changes during January.
In a separate report Thursday demonstrating that the economy has plenty of pep left to it, the Labor Department said new claims for jobless benefits unexpectedly fell last week to the lowest level since July. Many analysts had expected an increase in claims.
Stoking the demand for stocks is a strong dollar, analysts said. They cited a variety of reasons that the currency’s recent rise has lifted the market.
“The dollar’s strength is diminishing fears of inflation because a strong dollar tends to lower the cost of imports,” said Jack Shaughnessy, director of research at Advest. “Clearly, inflation has always been a critical variable for the market.”
In late New York trading, the dollar cost 124.35 yen, up from 124.17 on Wednesday.
On the NYSE, advancing issues outnumbered decliners by more than a 2-1 margin in heavy trading.
The S&P; 500, which on Wednesday broke above the 800 mark for the first time, rose 9.05 points to 811.82. The NYSE composite, which also is dominated by larger companies, rose 4.54 points to 424.42.
The Nasdaq composite index-- which on Wednesday surged 27 points, or about 2%--rose 11.85 points to 1,370.81 but remained about 17 points shy of a new high. Indexes of smaller companies matched the advance seen in better-known barometers. The Russell 2,000 index of smaller shares rose 2.78 points, or 0.76%, to 368.18, close to the Dow’s 0.87% rise.
Even with all the elements of a positive market environment in place, several analysts warned that the bull market seems to be developing a cult personality.
“People are starting to treat these top 50 stocks as collector’s items,” said Richard Cripps, chief market strategist at Legg Mason Wood Walker. “We need to enjoy this but not necessarily take on more risk at these levels.”
Among Thursday’s highlights:
* Merrill Lynch led a sharp rally in financial stocks, jumping 8 1/2 to 96 1/2. Citicorp rose 4 to 123 1/2 and BankAmerica gained 5 1/8 to 123.
* Pharmaceutical shares were also strong. Merck rose 3 3/4 to 99 5/8, Pfizer rose 2 3/8 and Johnson & Johnson gained 1 1/8 to 61 3/4.
* Major makers of personal computers gained. Compaq Computer rose 1 1/2 to 83 1/2 and Dell Computer advanced 3 9/16 to 70 1/4.
* Galileo shares tumbled 11 3/4 to 6 7/8 after the maker of copier parts said its biggest customer, Xerox, decided to make the parts itself to cut costs. Xerox lost 3/8 to 56 1/8.
* A possible Federal Trade Commission challenge to the proposed merger of office supply retailers Staples and Office Depot caused Staples to rise 15/16 to 20 15/16 and Office Depot to fall 3/8 to 19 1/4 as investors speculated that of the two chains, Staples would end up better off if the planned merger fails.
Overseas, Tokyo’s Nikkei stock average rose 1.5%, Frankfurt’s DAX index rose 0.4% and London’s FTSE-100 rose 0.5%.
