Blue Chips Propel Dow to Record 1-Day Gain
Wall Street sent heads spinning Thursday with a rally in “old-economy” stocks that lifted the Dow Jones industrial average nearly 500 points, a record for a single day.
The gain, on the heaviest New York Stock Exchange trading volume ever, was driven by frenzied buying of many of the banking, drug and industrial stocks that investors had dumped with equal fervor in recent weeks.
It was an explosion without an obvious catalyst, other than a growing feeling that the old-line stocks had been beaten down to bargain levels, especially compared with the technology shares that have been the market’s darlings for the last five months.
The Dow ended with a gain of 499.19 points, or 4.9%, to 10,630.60. The percentage gain, while large, did not rank among the biggest in history.
The broader market also surged as nearly 1.5 billion shares changed hands on the NYSE. That surpassed the previous record of 1.3 billion on Dec. 17.
More significant, Thursday’s move exemplifies how the entire market has seemingly been seized by “momentum” investors--fast-money players who shift huge sums at a moment’s notice, hoping to ride whatever the current market wave may be.
Early this year, the wave was tech stocks--the “new-economy” companies. But early this week, a sell-off began in biotech and other recently roaring tech sectors.
By Tuesday, it seemed, the hot money that couldn’t own enough of those stocks began looking for a new home--and found it in familiar names such as American Express, Johnson & Johnson and General Motors.
Yet on Thursday, even as those old-economy names led the market, the surprise was that many new-economy shares also rebounded. The Nasdaq composite index, which had fallen nearly 10% between Monday and Wednesday, soared 134.77 points, nearly 3%, to 4,717.39 as buyers jumped back into many tech names as well.
Where all of the cash came from to power Thursday’s rally was a mystery to many experts. And whether the rally in old-economy stocks can continue--especially with the Federal Reserve meeting Tuesday, when it will probably raise interest rates again--remains a big question mark.
Ironically, one reason for the comeback in old-economy shares is a sense that business and consumer spending may finally be starting to cool down, said Philip Orlando, investment chief at Value Line Asset Management in New York.
Also, except for high oil prices, inflation continues to be tame, as a government report on wholesale prices showed Thursday.
Slower growth, with low inflation, could mean the Fed may not have to push interest rates up much further, Orlando said. And that could give many investors the reason they need to bet on another market rally, some say.
The 8.4% rally in the Dow over the last two days was the biggest since October 1987, when the index rebounded from its horrific 22% one-day crash on Oct. 19 that year.
From his perch on the floor of the NYSE, Ted Weisberg, president of Seaport Securities, said the action was “pretty exciting.”
“I’ve been here 31 years,” he said, “and I don’t remember seeing anything like this.”
Weisberg suspects that the market rocket was fueled earlier this week by some wrong-way bets by large investors, who thought the Dow would keep sliding. Once it turned sharply upward, they had to quickly reverse themselves and start buying in huge volume.
From there, momentum psychology took over: When the arrow points up, many big investors these days buy first and ask questions later. “We live in this world where momentum is everything,” Weisberg said. “Stocks trade like commodities today, and the rule with commodities is you never fight the trend.”
Although much has been made of the rising clout of the individual investor, market watchers said this week’s rally is mainly an institutional phenomenon, with Wall Street pros in charge and much of the money coming from pension funds, insurance companies and other big players.
Analysts also speculated that the news this week that Japan once again had slid into recession may have spooked some foreign investors and caused them to shift money into blue-chip U.S. stocks.
“It doesn’t seem likely that those 6 million day-traders are all of a sudden going to get interested in Union Carbide,” quipped mutual fund manager David Dreman.
Mutual fund investors may be aware of the Dow’s two-day surge, but money isn’t yet pouring into old-fashioned, value-oriented “growth and income” and “equity-income” stock funds that focus on old-economy stocks, mutual fund companies report.
Vanguard Group, the nation’s second-largest fund company, said Thursday that its value funds were still experiencing net outflows Tuesday. Wednesday’s figures were not available. “I think it’s going to take more than a couple strong days in the Dow to attract money back,” Vanguard spokesman John Woerth said.
Mutual fund flows are “like the caboose on a train,” said Thomas McManus of Bank of America Securities in New York. “They tell you where the market’s been, not where it’s going.”
Indeed, several individual investors who talked about the market Thursday said they weren’t making any sudden moves.
“The Dow has been beaten up so much this year, I was thinking it may be a good time to jump into Dow stocks,” said Robert L. Miller, a 31-year-old attorney from Irvine who considers himself a buy-and-hold investor.
“I’m sure a lot of them represent a good value,” he said, “but I haven’t made any firm moves in that direction.”
Ronald W. MacDermot is a former warehouseman in San Dimas who retired two years ago at age 55, thanks to his stock investments. He started investing at age 42.
MacDermot said he hasn’t changed his strategy as the market has bobbed and weaved in recent weeks. “I have a piece of everything,” he said. “I’ve got technology, I’ve got consumer products like Wal-Mart and Sara Lee and Gillette that I’ve had for years.”
MacDermot said he was waiting for tech stocks to reach a bottom so he could invest more. Despite the recent run-up, he’s pretty sure he will have another opportunity to buy tech stocks on sale.
“I only buy things when other people don’t want them. I don’t want to chase things,” he said.
Some analysts are suspicious of the Dow’s snapback, saying it resembles one last April, when stocks such as Alcoa and Caterpillar caught fire but fairly quickly burned out.
“Does this look like it has legs, or is it just a seductive rally that’ll be very short-lived? I think the latter,” said New Jersey money manager G. Richard Eakle. “The more convincing growth opportunities are still in technology.”
Indeed, it was just a week ago that consumer products giant Procter & Gamble warned that its earnings in the near term will be hurt in part because of higher raw materials costs, such as for oil. That news drove P&G; stock down nearly 40% for the week and pulled the Dow down 4.2% in the period.
Meanwhile, in recent days such tech giants as software firms Oracle Corp. and Adobe Systems and fiber-optics firm Corning Inc. have either reported better-than-expected quarterly earnings or told Wall Street to expect results to beat estimates.
Value Line’s Orlando noted that in this momentum-driven stock market, trends that used to take weeks or months to unfold now occur in days, if not hours.
For example, Wall Streeters have been saying for months that the tech-dominated Nasdaq market was overdue for a correction.
The index closed at a record 5,048.62 on Friday--then tumbled nearly 12% early this week, including a 127-point dive Thursday morning before things turned.
“There’s your correction,” Orlando said. Still, he believes that Nasdaq, given its phenomenal surge over the last year, probably will “tread water” over the next few months while the rest of the market tries to catch up.
So far this year, the Dow remains down 7.5% despite this week’s rally, and Nasdaq is up 16% after rocketing 86% in 1999.
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GUESSING GAME
Market analysts are dubious that the two-day 8.4% Dow run-up marks a new rally. C1
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Dow’s Biggest Point Gains
The Dow Jones industrial average recorded its biggest daily point gain in history Thursday, though it was not a record percentage gain. The 10 best point days for the average, including percentage change in value:
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Point Pctg. Date gain Close gain March 16, 2000 499.19 10,630.60 4.9% Sept. 8, 1998 380.53 8,020.78 5.0 Oct. 28, 1997 337.17 7,498.32 4.7 Oct. 15, 1998 330.58 8,299.36 4.1 March 15, 2000 320.17 10,131.41 3.3 Sept. 1, 1998 288.36 7,827.43 3.8 Jan. 7, 2000 269.30 11,522.56 2.4 March 5, 1999 268.68 9,736.08 2.8 Sept. 2, 1997 257.36 7,879.78 3.4 Sept. 23, 1998 257.21 8,154.41 3.3
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Source: Associated Press
New Interest in ‘Old Economy’
Investors on Thursday flocked back to industrial, financial, retail and other stocks representing the “old economy.” But many of those shares remain well below their highs of the last year. A sampling:
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52-wk. Thurs. Thurs. Thurs. pctg. Stock high close change change Ross Stores $26.13 $22.06 +$3.13 +16.5% Cooper Tire 25.00 12.19 +1.63 +15.4 Black & Decker 64.63 38.06 +3.81 +11.1 Illinois Tool 82.00 64.38 +5.88 +10.0 Intl. Paper 60.00 40.19 +3.56 +9.7 American Express 169.50 143.75 +10.88 +8.2 Home Depot 69.75 61.50 +4.50 +7.9 Alcoa 87.25 68.94 +4.88 +7.6 Caterpillar 66.44 40.69 +2.44 +6.4 General Motors 94.88 83.75 +4.94 +6.3
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Source: Reuters
