Dow Surges Over 9,500 to All-Time High

By THOMAS S. MULLIGAN and PAUL J. LIM

Jan. 7, 1999 12 AM PT

TIMES STAFF WRITERS

NEW YORK —

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 of 9,374.27 set Nov. 23.

The Bloomberg index of 142 Orange County stocks traded on the major exchanges gained 2.76 points, or 1.5%, to 186.77, its highest level since July. As in past rallies, biomedical and high-tech firms led the pack. The county’s hottest stock of 1998, Irvine chip maker Broadcom Corp., jumped $25.50 a share, or 19%, to $158.75.

The Dow 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, auto, financial-services and telephone sectors.

Even such out-of-favor industries as oil and steel perked up amid a growing conviction among some experts that the U.S. economy will be stronger than previously expected in 1999.

Health care and technology companies led the way in Orange County.

Insight Health, the Newport Beach provider of diagnostic imaging services, was the day’s biggest gainer, with a 26.5% run-up in its share price, to $7.75. Safeguard Health Enterprises, an Anaheim dental insurer, rose 19.6%, to $4.

Shares of MTI Technology Corp. rose 17.3%, or 88 cents, to $5.94, after the Anaheim computer storage device maker announced an expansion of its manufacturing facilities in Europe. And Rockwell International Corp., bolstered by the recent spinoff of its semiconductor division, rose $1.31 a share, closing at $44.19.

The economy bulls point to the recent strength of 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 flood of cash that continues to pour into the economy in the wake of the Federal Reserve Board’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 companies 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 the major exchanges of Britain, Germany and the Netherlands 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 Euroland economy.

Takeover speculation also contributed to Wednesday’s rally. Shares of Gucci Group jumped 19% after the luxury-goods maker LVMH announced it had acquired more than 5% of Gucci’s shares. French banks Societe Generale and Banque Nationale de Paris also rose on expectations that the euro’s introduction would spark more financial mergers.

But the euro weakened on Wednesday, falling to $1.159 from $1.176 Tuesday, amid speculation --denied by the European Central Bank--that settlement of euro trades by banks 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 up more than 360 points in the past two days, analysts at Santa Rosa-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.

Although many overlooked stock sectors gained ground, experts note that the rally 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 last September, Ebay shares have gained about 1,500%.

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 Co. and Gillette, its high stock price may be justified, Prudential’s Keon said.

Mulligan reported from New York and Lim from Los Angeles.

Market Roundup, C8

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Big Gainers

Orange County stocks trading for $2 or more with the biggest percentage increase Wednesday:

1. Insight Health 26.5%

2. PIA Merch 21.0

3. Safeguard Health 19.6

4. Broadcom 19.1

5. MTI Tech. 17.3

6. Easyriders 16.7

7. Consumer Port. 16.7