Dow Jumps 135.26 on Mild Inflation News
The Dow Jones industrial average rallied to its second biggest point gain ever Tuesday as a tame inflation report provided at least temporary relief from the interest rate fears plaguing the market.
But the technology-laden Nasdaq market slumped in the aftermath of an impressive profit report but less-than-enthusiastic forecast from Intel.
The Dow rose 135.26 to 6,587.16, its biggest point gain since a 186.84-point jump that came two days after the Black Monday crash of 1987. The 2.1% increase was the biggest in percentage terms in three years.
Most broad market measures also rallied as interest rates eased from a nine-month high in the bond market.
In the past two sessions, the Dow has recovered about 200 of the nearly 700 points it had lost during the sharp pullback of the past month.
Many analysts remained cautious about the market outlook, however. They said the market should have been even more enthusiastic about a government report that consumer prices rose a mere 0.1% last month in spite of strong consumer spending in many sectors of the economy.
“One way of gauging the backbone, dynamism and fiber of a market is its ability to respond to good news,” said Steve Shobin, chief technical analyst at Lehman Brothers Inc. “If the market had fiber and substance it would have skyrocketed on this news.”
“We were way oversold late last week. The market was due for a rally,” said Jim Weiss, deputy chief investment officer for equities at State Street Research & Management Co. in Boston, cautioning that the two-day rally doesn’t mean an end to the market’s near-term troubles.
“It won’t be long before people are wringing their hands about whether the Federal Reserve will raise interest rates in May,” he said. “I suspect we haven’t seen the lows in this correction.”
Bonds, which sank sharply on Friday after a worrisome report on wholesale prices, rallied after Tuesday’s report on consumer prices. As bond prices rose, the yield on 30-year Treasury bonds--a key influence on borrowing costs--eased from late Monday’s 7.17%, its highest finish since July, down to 7.09%.
The stock market was also bolstered by more encouraging reports on first-quarter profits by various bellwether companies.
Among Tuesday’s highlights:
* Caterpillar rose 3 5/8 to 83 on higher-than-expected earnings. Eastman Kodak and Johnson & Johnson met expectations; Kodak rose 2 1/4 to 75 3/8, and Johnson & Johnson rose 2 to 55.
* In the banking sector, which also benefited from the day’s drop in interest rates, Citicorp and Chase Manhattan both reported strong results. Chase gained 2 1/8 at 92 5/8, Citicorp added 3/8 at 106 7/8. Wells Fargo, which reported a 28% gain in first-quarter earnings but whose per-share earnings and revenues fell short of expectations, fell $6. 7/8 to $257 7/8. Banc One gained $1 5/8 to $41 3/8.
* Intel also beat analyst estimates with its earnings report late Monday, but in the jittery aftermath to the market’s recent tumbles, investors chose to focus on the chipmaker’s warning that its revenue growth will likely slow this quarter.
The news weighed heavily on the technology sector. Intel’s stock slid 2 3/4 to 131 as the most active Nasdaq issue, followed by Cisco Systems, which fell 3 1/8 to 50 1/8. The Nasdaq composite index, heavily swayed by its big technology components, fell 3.53 to 1,212.88.
Avant! Corp. sank 12 to 12 1/2 after the Santa Clara County district attorney’s office said it filed felony charges against the company and several of its senior officials for allegedly stealing Cadence Design Systems’ technology. The two companies make software that helps engineers design computer chips and have been bitter rivals. Cadence Design fell 1/2 to 30 1/2.
* Value Health rose 2 1/4 at 20 and Columbia/HCA gained 2 3/4 at 34 1/8 as Value Health tried to salvage its merger with Columbia/HCA.
Advancing issues outnumbered decliners by a 12-to-5 margin on the New York Stock Exchange, where volume totaled 506.88 million shares as of 4 p.m., up sharply from Monday’s sluggish pace.
Overseas, Tokyo’s Nikkei stock average rose 1.4%, Frankfurt’s DAX index rose 1.5%, and London’s FTSE 100 rose 0.8%.
The dollar fell against the German mark after profit-taking wiped out early gains that were sparked by remarks by a senior German central bank official and a rally in stocks and bonds.
