Stocks rally for 2nd day Dow up 45 Investors counting on brighter future

July 30, 1992|By New York Times Service

NEW YORK -- Almost giddy over the way interest rates have been sinking, the stock market is climbing sharply again. Investors, it seems, are banking on the economy's potential and ignoring its current illness.

In a flurry of active trading, traders have pushed the Dow Jones industrial average up nearly 100 points since Monday. Buyers hurried into the market yesterday, analysts said, as more became convinced that this week's sudden surge may become a lasting summer rally.

The Dow soared 45.12 points, or 1.35 percent, to close at 3,379.19 yesterday, after gaining 51.87 points on Tuesday. Still shy of last month's record of 3,413.21, the Dow has been climbing consistently since Jan. 1, breaking its own record an average of three times a month since then.

The broader Standard & Poor's index of 500 stocks, after lagging behind the Dow for months, set a new high of its own yesterday by closing at 422.23, up 4.71 points, or 1.13 percent. Its previous high, 420.77, was set on Jan. 15.

With a stunning burst of opening-hour activity, the New York Stock Exchange traded 275.9 million shares yesterday, its busiest session since Jan. 17, when 287.4 million shares changed hands, and well above the 218.1 million shares traded Tuesday. The market was most frenzied in its first 90 minutes of trading, when 100 million shares were exchanged, and the Dow rose 44 points.

The impetus for the rally has been the drop in long-term interest rates, which are thought to be essential to an economic recovery for the way they aid borrowers, whether homeowners with mortgages or corporations or the federal government. Lower interest rates also make stocks a more attractive investment, compared with bonds.

The drop in interest rates, however, stalled yesterday, and prices of Treasury notes and bonds ended with modest declines in heavy trading as rates rose slightly.

Stock market analysts agree that the interest-rate spark of recent days fell on a dry forest of ready money. Many investors have been cautious since mid-June, when the market stumbled and a steep fall seemed possible, and they accumulated growing cash positions.

"You have a situation primed to do one thing or another," said Michael Metz, chief investment strategist for Oppenheimer & Co.

Another big market-mover, Mr. Metz said, has been tactical asset allocators, computer programs that large investors use to determine a favorable balance of investments in various markets.

When long-term interest rates fell below 7.5 percent Tuesday, many programs suddenly indicated that stock prices -- without having changed significantly -- had become undervalued. Buy signals emerged for stocks throughout the market, and with rally was spread evenly and thinly.

For example, only three of the 30 stocks in the Dow average fell Wednesday, and yet only two rose more than $2 a share. All leading market indicators were up, and gaining stocks outnumbered losing ones by about 5-to-2.

"If this is the beginning of a summer rally, you have to be part of it," said Vincent Graziano, head of institutional trading for Josepthal, Lyon & Ross.

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