Dow sets new record to end busy week

August 24, 1991|By Thomas Easton | Thomas Easton,New York Bureau of The Sun

NEW YORK -- Buoyed by an economic growth indicator that surpassed all expectations, the Dow Jones industrial average jumped 32.87 points yesterday to set a new record of 3,040.25, 5 points more than its previous high-water mark on June 3.

Prices began rising at the opening yesterday after a Commerce Department report showed last month to have had the strongest growth in durable good orders in more than two decades. The enthusiasm continued until midafternoon before tapering off, said John Parasco, a senior vice president at Lehman Bros.

By late in the day, Wall Street and midtown were deserted,

providing a quiet end to a dramatic week that began with a 100-point slide Monday morning on news of the overthrow of Soviet President Mikhail S. Gorbachev. But the Dow rebounded to close only 70 points down that day, and the stunning collapse of the coup brought stocks roaring back in hectic trading later in the week.

With the final boost from the durable goods report, the Dow closed up 72 points for the week.

Yesterday's good news from the Commerce Department showed particular strength in orders for cars and airplanes, fanning optimism about two industries that are being watched closely by many analysts who suspect that the economy could soon relapse into recession.

The report brought another "manic-depressive" reaction from a market already prone to rapid shifts in sentiment, said Paul Ehrlichman, a partner with Brandywine Asset Management in Wilmington, Del.

"People went from believing the economy is recovering, to believing it won't, to believing it will again," he said.

The apparently expanding economy reawakened concerns about potential inflation, and bond prices sank.

The yield on the benchmark 30-year Treasury bond rose yesterday from 8.05 percent to 8.13, and its price declined about $8.75 per $1,000 in face value.

The durable goods report also prompted many investors to shift their emphasis from so-called "defensive" stocks -- companies producing pharmaceutical products, foods, tobacco and the like to cyclical companies that tend to feed on an expansion, such as producers of aluminum, copper and other materials used in manufacturing.

B. F. Goodrich, for instance, a major producer of the material used for pipes and house siding, was battered on Wall Street Monday, with its stock falling 8 percent, to just under $40 a share. But after appreciating for four straight days, Goodrich finished the week up 5 percent for the week at $45.375.

Similarly, both Ford Motor Co. and International Paper, which were dumped by investors Monday, substantially rebounded yesterday afternoon.

The surge in share prices was not accompanied by similarly good numbers on corporate profits.

Thom Brown, a partner at Rutherford, Brown & Catherwood Inc., a Philadelphia money management firm, noted that as a result, the market is now extremely expensive, based on all the traditional gauges, including price-to-earnings, price-to-book value and to price-to-dividends.

"I think the expectations built into this market are very high, and I don't see how we're going to realize those expectations unless we get a recovery that continues to produce similar jumps in durable goods, and I don't think it's in the cards," Mr. Brown said.

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