Dow Leaps 157 as S&P;, Nasdaq Break Records
Wall Street’s traditional “Santa Claus rally” arrived with a day to spare, as stocks staged a sharp advance Wednesday that drove key indexes to record highs.
Analysts said the buying wave reflected, at least in part, a heavy inflow of fresh cash to U.S. stock mutual funds in recent days as individual investors place their bets for the new year.
On Wall Street, the Dow Jones industrial average surged 157.57 points, or 1.7%, to close at 9,202.03, nearing its record high of 9,374.27 reached Nov. 23.
Two other major indexes--the Standard & Poor’s 500 and the Nasdaq composite--reached new highs on Wednesday, with the S&P; soaring 2.1% to 1,228.54 and the Nasdaq leaping 2.4% to 2,172.54.
The buying filtered out to the broader market as well. While in recent days many smaller stocks have been declining even as blue chips and major technology issues gained, on Wednesday rising stocks outnumbered losers by a margin of 19 to 11 on the New York Stock Exchange and a narrower 22 to 19 on Nasdaq.
Still, “what you’re seeing is a very narrow bull market being carried by very few stocks, and that’s a bad symptom,” argued Don Hays, director of investment strategy for brokerage Wheat First Union in Richmond, Va. “It doesn’t mean the end is in sight, but it’s not a healthy bull market at this point.”
Besides favoring such giant technology stocks as IBM, up $2.75 to a record $185, and Intel, up $5.94 to a record $125, investors’ fascination with the red-hot Internet sector shows no sign of ending.
Buyers bid shares of Multiple Zones, a small computer products distributor, up a stunning $44.56, or 390%, to $56 on Wednesday after the firm said it was launching a Web site to auction computer equipment.
“In this environment, people are looking for reasons to react, reasons to buy,” said Steven Goldman, market strategist at Weeden & Co. of Greenwich, Conn.
But if individuals are chasing Internet stocks, many also have begun pumping money into diversified stock funds, data suggest.
Trimtabs.com, a Santa Rosa, Calif., firm that tracks fund flows, estimates that since Dec. 18, investors have plowed a net $9 billion into stock funds industrywide.
By contrast, stock funds had suffered net outflows between Nov. 25 and last Thursday, Trimtabs.com said.
Because mutual funds tend to make annual capital gains payments to shareholders in the final two months of the year, many investors have learned to hold back on fund purchases until those payments are made--thus avoiding the trap of buying an instant tax liability.
Now investors are buying funds again, which gives fund managers the cash to make new stock purchases. And many of the funds favored by investors are those that focus on the well-known stocks that have led the market for most of the last five years.
Vanguard Group, the nation’s leading manager of index funds--including the Vanguard Index 500, which mimics the blue-chip S&P; index--has seen strong inflows in recent days, a spokesman confirmed.
But other fund companies say inflows have been modest or nonexistent so far.
Charles Schwab, for instance, which runs the nation’s leading mutual fund “supermarket,” reports that its account holders have not made dramatic moves, either to buy or sell funds, in recent days.
“It’s been pretty quiet,” said Schwab spokesman Greg Gable.
On Tuesday, for instance, a net $71 million was invested in Schwab’s stock funds, which Gable characterized as “unremarkable.”
Like Schwab, Milwaukee-based Strong Funds has reported little buying or selling activity in recent days and weeks.
But the vast majority of Strong’s equity funds have not made their capital gains distributions yet, the company noted.
On Wednesday, the stock market all but ignored a surge in Treasury bond yields. The yield on the bellwether 30-year T-bond jumped to 5.19% from 5.13% on Tuesday after the Federal Reserve released the minutes of its Nov. 17 policy meeting.
The central bank decided at that meeting to cut short-term interest rates for a third time since Sept. 29, but also decided that it would adopt a “neutral” position from then on--which was reflected in its decision this week to keep rates stable.
Also, third-quarter economic growth data reported Wednesday “looked pretty good” and may preclude another Fed rate cut any time soon, said Todd Barre, who helps oversee $10 billion at Harris Bank in Chicago.
In commodities trading, coast-to-coast frigid weather in the northern United States boosted oil markets and sent orange juice prices higher as traders worried about severe frost damage in California amid the cold.
But the day clearly belonged to the equity market once again. Markets will close early today (at 10 a.m. Pacific time) and have four 1998 sessions left afterward.
Barring a dramatic sell-off next week, the Dow looks to extend its winning streak since 1995. The index is up 16.4% year-to-date.
The Nasdaq composite, heavy with tech issues, is up 38.4% year-to-date. The S&P; 500 is up 26.6%.
Meanwhile, most smaller stocks lag far behind. The Russell 2,000 index of smaller shares still is down 7.4% for the year, after its dramatic decline in summer and early fall.
Among Wednesday’s highlights:
* The Dow was led higher by some consumer favorites, including Coca-Cola, up $2.50 to $69.94; GE, up $2.31 to $101.38; and Procter & Gamble, up $3.50 to $93.50.
* Drug stocks also gained, with Merck up $2.25 to $149.63 and Pfizer up $3.19 to $120.38.
* Among leading tech shares, Intel’s gain was spurred by Merrill Lynch analyst Tom Kurlak. A noted skeptic on the stock for months, he said the growth of the Internet will boost sales of computers and thus semiconductors.
He raised his near-term rating on the No. 1 chip maker to “accumulate” from “neutral” and said the stock could reach $144 in the next 12 months. Other big-name tech issues gaining included Microsoft, up $5.13 to $143.56; Dell Computer, up $3.56 to $75.44; and Cisco Systems, up $2.69 to $96.50.
* Internet mania focused mostly on Net commerce companies, including music seller CDnow, up $5.50 to $26.25; brokerage E-Trade, up $6.31 to $44.75; Ticketmaster Online-Citysearch, up $32 to $80.50; and UBid, up $53.50 to $188.
* America Online, which rocketed Tuesday on news it will be added to the S&P; 500 index, was unchanged at $138.
* The day’s casualties included some companies that have recently warned of weaker-than-expected earnings growth--highlighting Wall Street’s major concern, which is overall corporate profit growth in 1999. Losers included Ingram Micro, down $3.06 to $33.94; Day Runner, down 63 cents to $13.13; and Lockheed Martin, down $10.50 to $84.50.
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Market Roundup, C8
