Bearish Trend Is Broken by Day’s Rally, Some Pros Say
Frenzied buying of blue-chip stocks led the stock market’s spectacular recovery Tuesday, in a session that began with a deep plunge but ended with investors falling over themselves to get back in.
Meanwhile, bond yields reversed as money poured back out of bonds and into stocks.
On Wall Street, many market analysts pronounced themselves satisfied that the conviction they saw in the late-morning and afternoon buying means the threat of a continuing downtrend in prices has been significantly lessened.
With the Dow Jones industrials rocketing 337.17 points, or 4.7%, to 7,498.32--after Monday’s 554.26-point collapse--”I think this was a negative-momentum breaker,” said Alan Shaw, technical markets analyst at brokerage Smith Barney in New York.
What’s more, the record volume on the New York Stock Exchange and on the Nasdaq Stock Market--both of which traded more than 1 billion shares--also encouraged bullish analysts, in part because that volume encompassed heavy dumping of stocks at the outset Tuesday.
That early decline had the earmarks of a “selling climax,” Shaw said: Added to Monday’s point decline, the 189-point Dow drop early Tuesday marked a total decline in the Dow of nearly 10% from Friday’s close.
In a selling climax, bearish investors exit in a final flourish, clearing the way for bulls to regain control of the market.
Some analysts noted another positive in Tuesday’s dramatic turnaround: Wall Street returned to its usual role of being the market that the rest of the world follows, rather than leads.
The recovery in U.S. share prices Tuesday morning put a halt to what were massive declines in European markets. The key German share index, for example, fell as low as 3,487 before rebounding to close at 3,567, still down 8% for the day.
“We’re back to the dog wagging the tail” instead of vice versa, said Scott Marcouiller, technical markets analyst at brokerage A.G. Edwards in St. Louis.
The U.S. rebound also helped bolster most battered Asian markets early today.
Tuesday’s resurgence in share prices was fueled in part by bullish comments from well-known market seers, including Goldman, Sachs & Co.’s strategist Abby J. Cohen, who raised her weighting of stocks in the firm’s recommended portfolio to 65% from 60%, based on Monday’s pullback.
“Recent stock price declines have been more of a market event than an economic event,” Cohen told clients, reiterating her belief that the U.S. economy will remain healthy despite Asia’s economic woes.
IBM also presented a bullish case for share prices, especially in the beleaguered tech sector, by announcing plans to buy back $3.5 billion of its own shares. IBM stock rocketed $9.38 to $99.38.
What’s more, rumors swirled that Intel also will announce a new buyback program. The company denied the rumors, but the stock zoomed $10.25 to $85 anyway.
Despite the frenzy to get into many big-name stocks, however, the rally’s breadth wasn’t overwhelming. Winners topped losers by 18 to 13 on the NYSE and by 29 to 20 on Nasdaq. Those margins improved rapidly all day long.
And even if the downward momentum in the market is broken, Shaw and others question whether stocks are poised to retake their old highs any time soon.
“This may not be a positive-momentum creator,” Shaw said, but rather an event that marks the beginning of a trading range for stocks, as investors mull the market’s prospects.
Roy Blumberg, investment strategist at Josephthal Lyon & Ross, predicted “a lot more volatility ahead,” but said Tuesday’s rebound demonstrated that the bull market isn’t over.
Small investors, he said, aren’t done buying stocks, “because they’re still greedy” after seven years of heady bull market gains.
“We won’t lose them until we have a prolonged period of decline in prices--at least six bad months,” he said. “And I don’t think that’s going to happen any time soon.”
Elsewhere, the rally in bonds Monday that resulted in part from money exiting stocks reversed on Tuesday.
The 30-year T-bond yield zoomed to 6.28% from 6.12% on Monday, and short-term yields also soared.
Bond traders, and many stock traders, are nervously awaiting Federal Reserve Board Chairman Alan Greenspan’s testimony to Congress today.
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.
* 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.
Market Roundup, D17
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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
