Dow Rebounds 152 on Hints of International Cooperation
Blue-chip stocks partially recovered Friday after two days of heavy selling, on signs that Western governments were nearing agreements on new ways to address the world financial crises.
But the broad market was mixed, even as long-term Treasury bond yields fell again to record lows on the heels of a weak September employment report.
In Europe, most stock markets were slammed for a second day on fears of slowing economic growth.
On Wall Street, the Dow Jones industrials closed up 152.16 points, or 2%, at 7,784.69, in a rally that gained steam all day.
Most stock indexes posted smaller gains, however. The New York Stock Exchange composite was up 1.6% and the Nasdaq composite edged up just 0.2%. The Russell 2,000 eased 0.1%.
Winners topped losers by 18 to 14 on the NYSE in very heavy trading, but losers had the edge on Nasdaq.
One catalyst for the stock market’s turnaround was a proposal from President Clinton, who in the morning introduced an initiative to provide emergency funding for countries affected by the global turmoil in the hope of forestalling a global recession.
The initiative came a day ahead of the annual meeting of the Group of 7 top industrial nations in Washington and followed news that Japan’s lower house of Parliament passed a set of financial-stabilization bills designed to deal with that country’s banking crisis.
In all, the developments helped reassure a market fraught with recession fears that governments might yet muster a response to widespread economic woes.
“There seemed to be about a dozen things that mosaically pieced together helped,” said Philip Orlando, strategist at Value Line Asset Management. “This G-7 is potentially very important now because policy decisions are going to be what serve as a catalyst for any recovery.”
Even so, for the week the Dow fell 3%, or 244 points, and the Russell index tumbled 5.2%, halting the recoveries they made September.
Things were much worse in European stock markets, where the German market plummeted 6.3% on Friday, bringing its loss for the week to 13.1%, and leaving it down 7% year-to-date, versus the Dow’s 1.6% year-to-date loss.
While economic worries hit Europe this week, Germany’s dive on Friday was tied to heavy selling in Daimler-Benz on news that the stock won’t be included in the Standard & Poor’s 500 index after Daimler’s merger with Chrysler.
In U.S. trading, a reminder that the economy’s strength may be ebbing came in a report that nonfarm U.S. payrolls increased just 69,000 in September, the lowest since January 1996.
The news sparked renewed buying of Treasury bonds, which have enjoyed a spectacular rally all week. The 30-year T-bond yield ended at 4.84%, down from 4.87% on Thursday and a record low. The yield was 5.12% just a week ago.
“We’re in a slowing economy,” said Randy Bateman, who helps oversee $10 billion at Star Bank NA in Cincinnati. “The market recognizes that.”
Shorter-term yields, however, were mostly flat Friday.
For the stock market, one major positive Friday was that the Dow held above its Aug. 31 lows. Falling below those lows could signal a fresh sell-off to much lower levels, analysts say.
Among Friday’s highlights:
* Strong blue chips included Chevron, up $3.63 to $87.63; Coca-Cola, up $2.69 to $58.94; Merck, up $2.75 to $127.75; and Procter & Gamble, up $3.81 to $74.94.
* Battered financial stocks rallied, with Merrill Lynch up $2 to $46, J.P. Morgan up $2.50 to $83.50 and Citicorp up $6.75 to $95.
* Defense stocks were strong. General Dynamics jumped $3.50 to $54, Lockheed Martin gained $7.25 to $105.31 and Northrop Grumman rose $1.81 to $74.88. Lockheed got a $2.05-billion, seven-year contract from the Air Force to maintain the F-117 stealth fighter, known as the Nighthawk.
* So-called defensive stocks, whose earnings tend to be less sensitive to the economy’s swings, continued to stand out.
For example, electric utilities rose, pushing the Dow utility index up 2.1% to a record high. It gained 3.8% for the week. Also strong were grocery stores, drugstores and telephone utilities.
* Gold stocks continued to rise as near-term gold futures added 90 cents to $300.50, a four-month high.
* U.S.-traded Latin American stocks rallied as Latin markets jumped with the Dow. The Mexican market zoomed 4.1%, though it was down 4.7% for the week.
In Tokyo the Nikkei index fell below the psychologically important 13,000 mark Friday--a level last breached in 1986--before closing up 0.2% at 13,223.
Analysts were divided as to whether a close below that mark would be worrisome.
“The psychological impact is small,” said Shoji Hirakawa, chief strategist at Kokusai Securities. “We keep breaking post-bubble lows. Everyone knows it’s going to get worse and no one’s surprised anymore.”
