Another Dow Milestone : Stocks Rally Broadly to Record Highs as Yields Slide

Wall Street’s bull market plowed ahead to new highs Thursday, hurdling the Dow industrials’ seventh millennium mark in a broad rally stoked by falling interest rates.

The Dow rose 60.81 points, or 0.9%, to a record 7,022.44, adding to Wednesday’s 1.5% rise and bringing the blue-chip index’s year-to-date gain to nearly 9%.

Despite constant admonitions that the market machine is running on fumes after the Dow’s 33.5% surge in 1995 and 26% rise in 1996, many analysts say investors’ craving for stocks is rooted in healthy fundamentals: With the U.S. economy continuing to grow at a moderate pace, and inflation tame, the outlook is favorable for both corporate earnings and interest rates.

Indeed, government data Thursday showing a modest rise in retail sales in January helped spark a strong rally in bonds, sending long-term yields to their lowest levels since Dec. 30.

The bellwether 30-year Treasury bond yield dropped to 6.62% from 6.70% on Wednesday. The yield has tumbled from a recent high of 6.94% on Jan. 27.

What’s more, the dollar’s recent strength is bolstering the optimistic outlook about inflation, because a healthy dollar reduces the cost of imports.

“Everything’s pointing toward lower rates and inflation,” said Alan Day, who manages about $900 million at Stratevest Group in Burlington, Vt.

On Wall Street stocks had continued to rise through midday Thursday, adding to Wednesday’s rise, but the gains were modest until yields began to drop sharply in the bond market in late afternoon--after the Treasury completed its quarterly “refinancing” with the sale of new 30-year bonds at an average yield of 6.64%.

Although some of the factors boosting stocks lately have negative implications as well--a strong dollar, for example, makes it tougher for U.S. companies to compete abroad and clips their earnings--”this market is interpreting everything positively right now,” said Charlie Crane, director of research at Spears Benzak Salomon & Farrell in New York.

The same can be said for many other stock markets worldwide. Share prices hit record highs Thursday in Australia, Brazil, Britain, France, Germany, Indonesia, Ireland, Mexico, the Netherlands, Russia and Sweden, among other countries.

“The history books will write that this is the best post-World War economy, bar none,” said John Kim, chief investment officer at Aeltus Investment Management, with $38 billion in assets. “[Corporate] earnings will continue to be the focal point, and we like the prospects here.”

Still, some analysts say investors’ interest is too intensely focused on well-known U.S. blue-chip stocks, at the expense of the rest of the market.

On Thursday stocks’ advance appeared to be broad, with winners topping losers by 17 to 8 on the New York Stock Exchange and by 22 to 18 on Nasdaq. The Nasdaq composite index of mostly smaller stocks rose 11.85 points, or 0.9%, to 1,370.81, matching the Dow’s rise.

But the Nasdaq index remains below its recent peak, and is up 6.2% year-to-date versus the Dow’s 9% rise. And a better index of smaller stocks, the Russell 2,000, has gained just 1.5% so far this year, badly lagging the Dow.

“People are starting to treat these top 50 [blue-chip] 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.”

Even so, some market bulls also note that the Dow’s big point gains can exaggerate the magnitude of the index’s advance. The Dow’s rise from 6,000 in October to 7,000 now was a 16.8% gain. In contrast, the 1,000-point rise from 4,000 to 5,000 was a 25% gain.

And while some blue-chip issues have clearly become overvalued by traditional measures, mutual fund managers who are receiving near-record sums from individual investors may continue to feel that such brand-name multinational stocks offer good earnings potential and relative safety, analysts say.

“There’s no way to predict how far, how fast, how high it will go,” said David Katz, head of Matrix Asset Advisors. “At the moment, you want to sit back and enjoy it.”

Among Thursday’s highlights:

* Merrill Lynch led a sharp rally in financial stocks, which benefit from lower interest rates. Merrill jumped 8 1/2 to 96 1/2. Also, Citicorp soared 4 to 123 1/2 and mutual fund firm Franklin Resources surged 3 7/8 to 62 1/2.

* Major drug stocks staged another strong advance. Merck leaped 3 3/4 to a record 99 5/8, Pfizer rose 2 3/8 to 96 and Johnson & Johnson was up 1 1/8 to 61 3/4.

Other brand-name consumer stock winners included Philip Morris, up 3 5/8 to 125 1/8, and Nike, up 4 1/2 to 75 3/4.

* Many industrial names that would benefit from continued economic growth also gained. GM rose 1 5/8 to 59 1/4, Caterpillar surged 3 5/8 to 83 1/8 and Illinois Tool Works was up 2 to 85 3/4.

* Tech stocks, hit by profit taking recently, were mixed. Compaq added 1 1/2 to 83 1/2 and Intel inched up 1/4 to 157, but Motorola lost 3/4 to 63 and Nokia was off 3 to 64.

In currency trading, the dollar edged up to 124.35 Japanese yen in New York, up from 124.17 on Wednesday. But the dollar eased against the German mark.

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7,000 Is History!

The Dow Jones average of 30 blue-chip stocks surged 60.81 points to a record 7,022.44 on Thursday, the first close above the 7,000 mark and the latest power move for what is now history’s longest U.S. stock bull market. Optimism about higher corporate earnings and lower or stable interest rates is continuing to draw massive amounts of cash into stocks, not just here but worldwide. Quarterly closes of the Dow since 1972:

* Nov. 14, 1972: Dow closes at 1,003.16. It took the Dow 76 years to hit 1,000 from its opening-day close of 40.94 points on May 26, 1896

* Jan. 8, 1987: Dow closes at 2,002.30. It took 14 years and two months for the Dow to gain 100%.

* April 17, 1991: Dow closes at 3,004.46 points. It took four years and three months for the 50% gain.

* Feb. 23, 1995: Dow closes at 4,003.33. It took three years and 10 months for the 33% gain.

* Nov. 20, 1995: Dow closes at 5,023.33. It took nine months for a 25% gain.

* Oct. 14, 1996: Dow closes at 6,010.00. It took 11 months for a 20% gain.

* Feb. 13: Dow closes at 7,022.44. It took four months for the Dow to gain 16.8%.

In the four months it took the Dow to gain 1,000 points, or 16.8%, here’s how other key indexes have performed:

S&P; 500: +15.4%

S&P; 400: +9.4

Nasdaq composite: +9.1

Russell 2000: +5.5

DAX (Germany): +19.9

Bolsa (Mexico): +14.9

FTSE-100 (Britain): +7.1

Nikkei (Japan): -11.1

Sources: TradeLine, Bloomberg News, Associated Press, Time reports.