Dow’s 233-Point Surge to 9,544 Shatters Record
Wall Street’s new-year rally found yet a higher gear Wednesday as cash poured into stocks, powering the Dow Jones industrial average and other major indexes to all-time highs.
Investors who were afraid of missing the gravy train engaged in what some analysts called “panic buying” on one of the busiest trading days in market history.
The Dow surged 233.78 points, or 2.5%, to 9,544.97, shattering the old record close of 9,374.27 set Nov. 23.
The blue-chip index is now 4.8% from the 10,000 mark--which could be just a couple of days’ work given the current ebullient mood on Wall Street.
The Nasdaq composite index, dominated by major technology stocks, gained 69.59 points, or 3.1%, to 2,320.86--its fourth straight record close.
“There’s no rhyme or reason to it. They’re just buying everything,” Peter Henderson, managing director of Henderson Bros., marveled Wednesday afternoon from his post on the floor of the New York Stock Exchange.
Big Board trading volume was 987 million shares, the fifth-busiest session ever. On Nasdaq a robust 1.2 billion shares traded.
A rally that lately had been confined to a relative handful of tech and Internet names broadened substantially to the transportation, financial and telephone sectors.
Winners outnumbered losers 20 to 11 on the NYSE and by 25 to 16 on Nasdaq.
Even such out-of-favor industries as oil and steel perked up amid a growing conviction that the U.S. economy will be stronger than previously expected in 1999.
The economy bulls point to ongoing strength in auto and housing sales. A boom in home sales is especially significant because it pulls other sectors along with it, as new homeowners buy furnishings, insurance, gardening services and so on.
Another big factor in the rally is the cash that continues to pour into the economy in the wake of the Federal Reserve’s three interest rate cuts last fall.
Peter Canelo, investment strategist at Morgan Stanley Dean Witter, said that so-called M2, a broad measure of the U.S. money supply, has been expanding at an annual rate of 10% since midsummer. That’s the fastest growth in more than a decade.
With credit eased and ample liquidity, “the implication is that the economy isn’t going to slow, and corporate earnings will be higher than expected,” Canelo said. He has revised his 1999 earnings growth forecast for the blue-chip Standard & Poor’s 500 firms to 10% from 8%.
Many analysts, however, believe earnings growth this year will be modest at best for many companies.
On Wednesday, European stocks also continued to soar, with British, German and Dutch markets all up more than 3%.
The smooth introduction Monday of the euro, the common currency of 11 nations on the Continent, has helped boost confidence in markets and the so-called Euroland economy.
But the euro weakened on Wednesday, falling to $1.159 from $1.176 on Tuesday, amid speculation --denied by the European Central Bank--that bank settlement of euro trades has been problematic.
On Wall Street, analysts said stocks are gaining in part from the usual torrent of fresh cash that pours into the market in January, as new contributions are made to retirement accounts and people invest year-end bonuses.
Vanguard Group, the nation’s second-largest mutual fund company, was flooded with so many phone calls Wednesday that it called out its “Swiss army”--a reserve force of analysts, fund managers and just about anybody else available to help customer-service operators field calls--for the third day in a row.
“We’ve been extremely busy here since we opened the phone lines on Monday,” said Vanguard spokesman Brian Mattes. “We’re continuing to set and break records, in terms of inbound call volume, cash volumes--you name it.”
With the Dow already up 4% so far this week after a 16.1% rise in 1998, analysts at Santa Rosa, Calif.-based research firm Trimtabs.com believe “an avalanche of money” flowed into the nation’s mutual fund complexes in the two-day period ending today.
“I would be looking for $4 billion [in net new inflows] each day,” said Carl Wittnebert, Trimtabs’ director of research. To put that into perspective, the firm estimates that in all of December, investors put a net $5.1 billion into stock funds.
In just the first two trading days of this year, investors have plowed a net $450 million into stock funds at Janus Funds in Denver--about a third of the company’s stock fund inflows for all of December.
San Francisco-based Charles Schwab & Co. also reported heavy buying activity this week.
Still, not all fund companies seemed to have enjoyed this business. Invesco Funds in Denver and Strong Funds in Milwaukee reported little if any increased phone volume Wednesday.
In part, investors funneling more cash to stock funds may simply see few alternatives. Money market yields are a mere 4.5% or so. And longer-term Treasury bonds are in the same range. The 30-year T-bond yield ended at 5.17% Wednesday, down from 5.2% Tuesday.
But while many overlooked stock sectors gained ground Wednesday, experts note that the rally of recent months remains one of the narrowest on record.
New research by Prudential Securities indicates that five stocks--Microsoft, Lucent Technologies, Wal-Mart, Cisco Systems and Dell Computer--accounted for 22% of last year’s gain in the S&P; 500, and the index’s top 100 stocks accounted for 98% of its gain.
“It’s unprecedented to have that small a number of companies account for so big a proportion of the returns,” said Edward F. Keon Jr., Prudential’s director of quantitative research. So-called momentum investing, which amounts to buying only the strongest stocks (as opposed to hunting for value), “has become so popular that people tend to chase the same proven performers,” Keon said.
Some Internet stocks continued their wild ascent Wednesday, despite hand-wringing from critics who think the frenzy surrounding Internet shares is a form of mass hysteria that will end with a crash.
Online auctioneer EBay, for example, gained $59 to $283. Since going public at $18 in September, EBay shares have gained about 1,500%. Other winners Wednesday included Yahoo, up $33.13 to a record $291, and Broadcom, up $25.50 to a record $158.75.
Richard McCabe, chief market analyst at Merrill Lynch, called the Internet surge a “classic speculative binge.” The Internet sector is still just a small part of the overall stock market, but McCabe worries that a collapse of that “cult group” could tar the whole technology sector and send prices reeling.
Virtually nobody denies there are excesses in the Internet stocks, but some defend the group because of its fabulous growth prospects.
If America Online, for example, becomes as much a part of “the fabric of American life” as Coca-Cola and Gillette, its high stock price may be justified, Keon said.
Market Roundup, C6
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Bull Market Rolls On
Stocks soared Wednesday, boosted by continued buying of many technology stocks--as reflected in the Nasdaq composite index--and by new interest in many other market sectors. Weekly closes and latest:
Nasdaq index Tuesday: 2,320.86
Key Index Gains, Year-to-Date
S&P; airlines: +13.0%
S&P; steel: +11.6
S&P; oil services: +10.8
S&P; HMOs: +10.4
CBOE Internet: +9.3
S&P; financials: +4.2
Dow industrials: +4.0
Russell 2,000: +1.4
Source: Bloomberg News
S&P; is Standard & Poor’s; CBOE is Chicago Board Options Exchange
Market Roars
Wednesday’s close: 9,544.97
New high put the Dow within striking distance of the historic 10,000 mark. C1
