Dow hits 3,000 but retreats Average closes up 0.75, at 2973.27

March 07, 1991|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- The Dow Jones industrial average briefly crossed 3,000 yesterday as the stock market offensive that began with Operation Desert Storm pushed share prices back up to their record highs of last summer.

The Dow peaked at 3,002.72 shortly after 1 p.m. before surrendering gains and closing up 0.75, at 2973.27.

Volume on the New York Stock Exchange was a heavy 262.29 million shares.

Minutes before the closing bell, as the final hoarse cries of traders could be heard, James Maguire, a specialist on the floor of the NYSE, commented, "We reached a pyschological goal, and now we're just watching the runoff."

Since early January the Dow has soared about 500 points, and yesterday appeared to be another of many strong moves.

The vexing conclusion was merely another twist in a year when stock prices have consistently baffled almost everyone. Most of the befuddlement, Ralph Evans, another specialist on the exchange floor noted, has stemmed from how the market has exceeded, rather than fallen short of, expectations.

"It's made a fool out of everybody," he said.

Companies continue to report poor earnings, and economic surveys suggest weakness in consumer spending, construction, manufacturing and other key areas.

All that suggests lower, not higher, stock prices.

Noting the poor environment, professional investors have steered clear of stocks, Mr. Evans said, and as a result the advance has played poorly on the floor of the exchange. "The only cheering you hear is when the market goes down," he said. When the 3,000 mark was broken, "there was a tiny smattering of applause, a lot less than one would assume."

Most brokerage firms are unlikely to begin heavily recommending stock investments. Reflecting the pervasive common analysis, Richard Bernstein, head of quantitative research at Merrill Lynch, said his two primary valuation models, one based on economic data, the other on company profits and dividends, show stocks were 20 percent too expensive.

Similarly, studies of stock prices in relation to corporate cash flow, book value, asset prices and other criteria by the investment firm Oppenheimer & Co. indicated the rise in shares had far outstripped any of the underlying causes typically used to assess value.

"Frankly, I'm not enthusiastic about the market," said Michael Metz, the firm's market analyst.

"It's difficult to find cheap stocks, and any improvement in prospects has already largely been discounted," he said.

The only statistics supporting the move, Mr. Metz said, were those indicating margin purchases were scant and short interest was high.

These are among the more quizzical measures used on Wall Street. Short sales occur when traders sell borrowed shares on the premise they can be repurchased later for less. Margin purchases are those done on credit. When short sales are high and margin purchases low, it is typically a sign professional traders are acting on the premise the market will go down.

But their collective actions have a perverse affect. The low margin debt means buying power remains untapped, and the high short interest causes even small advances to boom when traders scramble to buy back shares and cover their positions.

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