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Dow Rises 346 As Investors Fing Bargains

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Dow Rises 346 as Investors Find Bargains


fter finishing its worst quarter since the 1987 crash, the stock market shot sharply higher yesterday, despite a negative report on manufacturing and the closing of 29 West Coast ports because of a labor dispute.

The report on manufacturing could be a sign that the economic recovery is weakening. The port closings, if they last, would further hamper growth by disrupting sales and the refilling of store inventories as the holiday shopping season approaches. Expectations for corporate earnings growth in the fourth quarter are also slipping.

But the Dow Jones industrial average rose 4.6 percent yesterday, while the Standard & Poor's 500-stock index climbed 4 percent. The Nasdaq composite index finished 3.6 percent higher.

It was the best day for the Dow in percentage terms since a rally of 5.4 percent on July 29. But like yesterday's rally, that surge came when the market was bouncing off what was then its lowest level in five years. By the end of business on Monday, the market had dropped below those summer lows.

The rebound came as investors apparently found many of the stocks that had fallen recently, and on Monday, an attractive buy. Six of the top 10 performers in the Dow yesterday were among the top 10 decliners on Monday.

Investors also received some positive corporate news. Forest Laboratories, up $7.84, or 9.6 percent, to $89.85, said that its profit for the third quarter would be about a third higher than Wall Street forecasts. I.B.M., which fell 3.4 percent on Monday, rose $2.86, or 4.9 percent, to $61.17, after announcing a $1.12 billion contract with the British pharmacy chain Boots.

Fannie Mae climbed $5.68, or 9.5 percent, to $65.22, after it said that it had taken steps to reduce its exposure to falling interest rates, which would have cut into its profit as home mortgages were refinanced.

Some analysts noted that interest rates have fallen so low, with the Treasury's 10-year note yielding 3.72 percent yesterday, that even a modest rise in stocks the next year would make equities more attractive.

But other analysts suggested that much of the buying may be from money managers whose portfolios have become too light on stocks just because the market has fallen so far.

For example, a money manager may be buying just to get the asset allocation back to 60 percent stocks and 40 percent bonds.

At the close, the Dow was up 346.86 points, to 7,938.79, while the S.& P. 500 rose 32.63 points, to 847.91. The Nasdaq index finished 41.66 points higher, at 1,213.72.

In the bond market, the rally in stocks pushed bond prices lower and yields, which move in the opposite direction, higher. The yield on the Treasury's 10-year note rose 12 basis points from 3.60 percent on Monday, the lowest it had been in more than 40 years. The price fell 1, to 1051332.

The yield on the Treasury's two-year note, which is sensitive to expectations of a Federal Reserve rate cut, climbed to 1.79 percent from 1.69 percent.

But even at 1.79 percent, the low level of the two-year note indicates that many investors are betting that Fed policy makers will cut the benchmark interest rate to 1.50 percent, from 1.75 percent, when they next meet in November.

Going into the day, the outlook for the stock market was not bright; sharp declines on Monday left the Dow down 17.9 percent for the quarter and the S.& P. 500 off 17.6 percent. Investors were also waiting for manufacturing data from the Institute for Supply Management. A report released on Monday indicated that manufacturing in the Chicago area was contracting and that the national data could also be surprisingly weak.

While the national manufacturing index did decline, it fell only to 49.5 from 50.5 in August. Robert J. Barbera, chief economist at ITG/Hoenig, said the decline was not so worrisome because it was consistent with the slow pace of the recovery. He also said that this index had fallen below 50 several times at the beginning of the recovery in 1991 and 1992 and did not signal the onset of another recession.

Following are the results of yesterday's Treasury auction of four-week bills:

(000 omitted in dollar figures)

Price | 99.876

High Rate | 1.600

Coupon Yield | 1.618

Low Rate | 1.560

Median Rate | 1.585

Total applied for | $40,459,227

Accepted | $17,839,227

Noncompetitive | $34,019

The bills mature on Oct. 31.

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