Stocks Post Broad Rally as Oil Slides
The stock market surged to new highs Monday, powered by falling oil prices and by investment legend Warren Buffett’s seemingly supportive view of the market’s valuation.
The Dow Jones industrial average soared 116.33 points, or 1.4%, to a record 8,718.85, leading a broad advance.
Indeed, new highs were recorded by nearly every major U.S. stock index. The Nasdaq composite gained 16.52 points, or 0.9%, to a record 1,788.18; the Russell 2,000 index of smaller stocks rose 0.6% to a record 471.76.
Winners topped losers by 18 to 12 on the New York Stock Exchange and by 24 to 19 on Nasdaq.
NYSE volume, however, slowed markedly, to 549 million shares.
Market sentiment was helped by oil’s latest plunge: Near-term crude oil futures on the New York Mercantile Exchange tumbled 78 cents to $13.28 per barrel, the lowest level since late 1988, amid a world supply glut. (Investor Spotlight, D14)
Oil has slid 31% since the Organization of Petroleum Exporting Countries agreed in November to boost its production quota by 10%.
On Friday, OPEC postponed a committee meeting set for Monday, reducing chances that the group would soon cut output, which last month exceeded the new quota by about 5%--in the midst of a U.S. winter that has been far warmer than usual, reducing energy consumption.
“The only salvation for prices is if OPEC stopped producing more than their quota,” said Robert Nance, president of Nance Petroleum Corp., which produces 3,000 barrels of oil a day in Billings, Mont. “It appears they’re not going to do that.”
What is bad for OPEC, however, is good for financial markets, as low oil prices put downward pressure on inflation and raise consumers’ purchasing power.
The bond market responded well Monday, as yields fell further. The yield on the bellwether 30-year Treasury bond fell to 5.86% from 5.89% on Friday.
Meanwhile, Buffett’s annual report to shareholders, published over the weekend, mentioned that he does not believe the U.S. equity market is overvalued, given current interest rates and corporate earnings. (Stories, A1, D7)
With Monday’s gain the Dow has chalked a rise of more than 800 points, or 10.3%, so far in 1998, surpassing what most analysts had forecast for the entire year.
Among Monday’s highlights:
* Bank stocks led the market, as Dow component J.P. Morgan rose $5.06 to $130.06 amid takeover rumors and positive comments from influential UBS banking analyst Thomas Hanley.
Other bank winners included Wells Fargo, up $6.13 to $325.63; BankBoston, up $4.13 to $106.38; and Citicorp, up $3.13 to $139.56.
* In the Dow, American Express rose $1.69 to $93.94, Walt Disney rose $3.63 to $109.63 and Sears was up $2.75 at $59.13. But McDonald’s was off $1.63 at $53 on news that Buffett had sold some of his stock in the fast-food company.
* Many industrial names gained on optimism about the economy. Alcoa rose $2.13 to $72.06, PPG Industries gained $2.38 to $66.88 and GE rose $1.06 to $79.38.
* WorldCom shot up $2.56 to $41.88 after Salomon Smith Barney analyst Jack Grubman said its shares would reach $60 in 12 months and $90 in 24 months.
* Eastman Kodak rose $1.81 to $62.56 after the company said it expected a tough first quarter but that 1998 as a whole will show significant improvement over 1997.
Market Roundup, D14
* VARYING VIEWS: Stocks’ gains deepen disagreement over market’s future. A1
