Investors Go After Stocks Hammered a Day Before
U.S. stocks soared in record trading of more than 2.7 billion shares as bargain-seeking investors pumped money into equities after Monday’s 7% decline, the worst since the crash a decade ago.
“People are starting to realize this is not 1987,” said Scott Schermerhorn, a senior money manager at Federated Investors in Pittsburgh, which manages $84 billion. “It’s not a market crash. This is a different animal.”
The Dow Jones industrial average jumped 337.17 points, or 4.7%, to 7,498.32, its biggest point gain ever. In percentage terms, it was the biggest jump since Oct. 29, 1987, shortly after the Oct. 19 crash that year. The gain erased more than half of Monday’s record 554-point loss, which was spurred by concern that sagging Asian economies would hurt U.S. exporters’ profits.
The Standard & Poor’s 500-stock index soared 44.07 points, or 5%, to 921.05, after having fallen 64.66 points Monday. The Nasdaq composite index rose 67.93 points, or 4.2%, to 1,603.02.
Gerold Klauer, general partner at GFLK Partners in New York, said Monday’s decline created some bargains that were too attractive to pass up.
“A lot of stocks fell [Monday] that have little impact from Asia’s problems,” Klauer said.
“This whole thing is just an interruption, a speed bump in the bull market,” said R. Lynn Yturri, who runs the $800-million One Group Income Equity Fund for Banc One Investment Advisors. “Hopefully, it will keep the bull market going on a lot longer by forcing people to judge these securities by their investment potential and not be so fascinated by the momentum.”
The rebound in the U.S. came on a day that saw declines in Europe and a plunge in Hong Kong, whose Hang Seng index sank 13.7%. There also were rallies in Latin America--Brazil’s Bovespa index rose 6.4% after suffering an early 13% decline, and Mexico’s Bolsa index rose 11.7%.
Initially on Tuesday, the Dow fell 189 points, and it didn’t look as if U.S. stocks would recover from Monday’s slump. The comeback began after IBM announced plans to buy back up to $3.5 billion of its stock, sending its shares up $9.38 to $99.38. Abby Joseph Cohen of Goldman Sachs and two other top Wall Street strategists helped, by suggesting that stocks were bargains.
Cohen, traders said, boosted the portion of equities in her model portfolio to 65% from 60% and said Monday’s drop left the S&P; 500 undervalued by about 5%.
Thomas McManus of NatWest Securities and Doug Cliggott at J.P. Morgan Securities also advised clients to shift money into stocks, partly because stocks were a more compelling buy. The price-to-earnings ratio for the S&P; 500, considered a key indication of stock valuation, fell to 20.49 yesterday from 23.04 on Friday. It was 21.97 at Tuesday’s close.
Among Tuesday’s highlights:
* Besides IBM, other stocks fueling the Dow’s rise included J.P. Morgan, up $6.25 to $114.25; Travelers, up $4.61 to $69.61; and Boeing, up $5 to $48.
Only four of the 30 Dow components closed lower Tuesday. On Monday, all 30 of the Dow stocks fell.
* Top computer industry shares rebounded, after having been beaten down in the last week. Intel, which dropped 12% from Tuesday of last week through Monday, gained $10.25 to $85. The semiconductor company was the most active stock on U.S. markets, with 51.8 million shares traded. Microsoft, which lost 7% in the last week, rose $4.63 to $133.38.
* BellSouth, like IBM, also announced a stock buyback. The phone company’s stock rose 94 cents to $46.94.
* Most retail shares gained on the view that although economic growth may slow, consumers will continue to spend. Dayton-Hudson gained $7.75 to $60.13, and Wal-Mart Stores rose $2.38 to $34.56.
* Drug stocks, among the biggest losers Monday, recovered somewhat. Merck rose $2.88 to $87.88, Eli Lilly gained $6 to $68.50 and Pfizer rose $3.63 to $71.38.
* Coca-Cola rose $4.19 to $57.75. Gillette rose $4.13 to $90.13.
Bond yields surged as investors yanked money out of fixed-income investments and poured it back into bargain-priced equities.
The yield on the benchmark 30-year Treasury bond rose to 6.28% from 6.12% on Monday.
The dollar tumbled to a five-month low against the Swiss franc and a four-month low against the German mark as the U.S. stock rally failed to erase broad losses that piled up after Monday’s record plunge on Wall Street.
The dollar also finished lower against the Japanese yen and against other European currencies, despite rebounding slightly in volatile trading after U.S. stocks shot higher.
A lower U.S. dollar aided gold prices.
“Gold was oversold after Friday’s news about potential Swiss gold sales, which saw more than 2 million ounces traded, and it was inevitable there was something of a systemic bounce-back, despite the stock market rally,” said Dinsa Mehta, Chase Manhattan global commodities managing director.
December gold at the Comex ended up $4.20 an ounce at $316.50.
Oil prices fell as worries faded that Iraqi oil sales might be disrupted and concerns increased that Asian oil demand might fall because of the financial crisis roiling economies there.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Anatomy of a Recovery
The U.S. stock market rebounded in dramatic fashion Tuesday from Monday’s steep dive, with the Dow Jones industrial average soaring 337.17 points, or 4.7%, to 7,498.32 as trading volume rocketed to record levels. Many of the buyers--at least those who could get through to their brokers--favored the tried and true: stocks that had been market leaders before the recent pullback.
A Massive Surge in Volume . . .
10 heaviest trading days on the NYSE, in millions of share:
Tuesday: 1,203.20
Jan. 23, 1997: 684.59
Oct. 27, 1997: 684.57
July 16, 1996: 680.91
Oct. 24, 1997: 677.70
Oct. 23, 1997: 673.29
Dec. 20, 1996: 654.11
June 20, 1997: 652.95
July 16, 1997: 652.85
Dec. 15, 1995: 652.83
. . . Lifts Stocks Across the Board . . .
Percentage changes in key stock indexes, Monday and Tuesday:
S&P; 500
Mon.: --6.9%
Tues.: +5.1%
*
Dow industrials
Mon.: --7.2%
Tues.: +4.7%
*
Nasdaq composite
Mon.: --7.0%
Tues.: +4.4%
*
Russell 2,000
Mon.: --6.1%
Tues.: +2.3%
. . . and Favors This Year’s Leaders
Many of the best-performing stock industry groups in the rebound were those that have been investor favorites all year. Top stock groups Tuesday in Standard & Poor’s 500 and their year-to-date gains:
*--*
Group Tues. gain YTD gain Toys +10.3% +28.8% Retailers (general) +10.2 +36.3 Brokerages +9.8 +65.0 Soft drinks +8.7 +17.3 Pollution control +8.6 +1.2 Computer systems +8.3 +46.6 HMOs +8.0 +7.4 Drugs +6.8 +42.4 Oil services +6.5 +63.1 Electrical equipment +6.4 +29.3 S&P; 500 +5.1 +24.3
*--*
Source: Bloomberg News
Dow’s Biggest Point Gains
Tuesday’s gain in the Dow industrials was the largest ever in points, and in percentage terms it was the biggest one-day gain since the days after the 1987 market crash.
*--*
Date Point gain Day’s close Pct. gain Oct. 28, 1997 337.17 7,498.32 4.7% Sept. 2, 1997 257.36 7,879.78 3.4 Oct. 21, 1987 186.84 2,027.85 10.1 April 29, 1997 179.01 6,962.03 2.6 Sept. 16, 1997 174.78 7,895.92 2.3 April 22, 1997 173.38 6,833.59 2.6 July 22, 1997 154.93 8,061.65 2.0 June 24, 1997 153.80 7,758.06 2.0 May 5, 1997 143.29 7,214.49 2.0 Oct. 21, 1997 139.00 8,060.44 1.8
*--*
Source: Associated Press
More Markets Coverage
* Stocks roared back, with the Dow posting a record gain. A1
* Worldwide stock turmoil signals moves to open markets. A1
* Market action shows investor psychology is rife with emotion. A1
* Small investors’ buying frenzy overwhelmed brokerages. A16
* How to get your mutual fund to work better for you. D12
* Some observers say a huge export boom is next for Asia. D12
*
Market Roundup, D17
