Dow Gains 97 on GDP Report, G-7 Proposals
Wall Street’s autumn rebound got a strong boost Friday from a better-than-expected economic report and from a pledge by the Group of 7 leading industrial nations to bolster the global financial system.
The Dow Jones industrial average ended up 97.07 points, or 1.1%, at 8,592.10 after profit-taking cut into a midday gain of nearly 175 points.
The broad market also was up sharply, building on its gains of recent weeks, as worries about global recession, or worse, have receded.
Winners topped losers by 22 to 9 on the New York Stock Exchange in active trading. On the Nasdaq market the composite index rose 0.8% to 1,771.39.
For the week the Dow rose 1.7% and the Nasdaq index gained 4.6%.
Meanwhile, bond yields rose as the economic news suggested the Federal Reserve Board might think twice about cutting interest rates further.
On Wall Street, analysts focused as much on the overall market rise for October as on Friday’s action.
October is notorious for being the month of the 1929, 1987 and 1997 stock market crashes. But it is also known as a “bear killer”--a month when the market bottoms and turns around after sharp declines, according to the Stock Trader’s Almanac.
The Dow has surged 12.6% from Oct. 1, when it bottomed at 7,632. The Nasdaq composite bottomed at 1,419 on Oct. 8 and is up 25% since then, and 12.8% year-to-date. The Standard & Poor’s 500 index has risen 14.5% from its bottom on Oct. 8 and is up 13.2% year-to-date.
“If you bought on the dips, you could have made a hell of a lot of money,” said Peter DaPuzzo, president of Cantor Fitzgerald & Co. “I’ve never seen a bear market so short. People believe they should have bought then, so they’re buying now.”
Worries about recession and global market calamity sent stocks reeling in August and September. But many investors’ fears have been calmed by the Federal Reserve Board’s two interest rate cuts since Sept. 29.
Also, the third-quarter U.S. economic growth report on Friday estimated the economy grew at a 3.3% rate in the quarter, much faster than expected.
“I think the report that the economy is growing at a faster-than-expected rate is bullish and set aside the fears people had that recession was just around the corner,” said Alan Skrainka, chief market strategist at Edward Jones.
“Certainly, the [Group of 7] was big news too, because the primary concern right now is that the global economy would pull the U.S. economy into recession, and both the reports allay those fears,” Skrainka said.
The G-7 pledged a new financial credit line for ailing nations.
In foreign trading, many markets extended their rebounds this week, with Hong Kong up 3.4%, Germany up 4.9% and Mexico 2%.
Also helping lift the U.S. market Friday was last-minute positioning by mutual funds, most of which closed out their fiscal years Friday for purposes of tax reporting.
What was good for stocks was bad for bonds, however. The benchmark 30-year Treasury bond yield rose to 5.15% from 5.08% on Thursday, as investors increasingly feel less need to be in “safe haven” securities.
A big test for stocks and bonds will come Nov. 17, when the Fed next meets. Many investors are betting on another rate cut.
Among Friday’s highlights:
* Industrial stocks gained on news of economic strength. Alcoa jumped $1.75 to $79.25, GM rose $2 to $63.19, 3M gained $2 to $79.63 and Georgia-Pacific soared $4.38 to $52.
Airlines also were helped by the economic report. Delta leaped $5.44 to $105.63 and US Airways gained $2.19 to $56.94.
* Brokerage stocks zoomed on new bullishness. Merrill Lynch soared $2.44 to $59 and Charles Schwab jumped $3.81 to $48.
* In the tech sector, Advanced Micro Devices climbed $2.69 to $22.56 amid optimism that an expected rise in personal computer sales this holiday season will continue to boost demand for its K6 microprocessor into 1999.
But Infoseek dropped $3.56 to $29.63 as the Internet search company reported a third-quarter loss of 8 cents. Analysts were expecting a loss of 6 cents.
* Wendy’s slumped $3.50 to $21 in the wake of a disappointing earnings report.
*
Market Roundup, C4
*
STRONG NUMBERS
The U.S. economy displayed strength this summer despite global crises. A1
*
RISK ASSESSMENT
The Group of 7 plan might entail more risk disclosure by hedge funds. C2
