U.S. stocks soar after German cuts S&P 500, NYSE index hit records

September 15, 1992|By New York Times News Service

NEW YORK -- Stock prices in the United States made their largest leap of the year yesterday, following sharp rallies in Europe, after Germany loosened its interest-rate tourniquet.

The Dow Jones industrial average, the main gauge of the market's strength, rose 70.52 points, or 2.1 percent, to 3,376.22, its biggest jump since an 88.10-point gain Dec. 23. Trading was the heaviest in more than six weeks, with 252.8 million shares changing hands on the New York Stock Exchange, up from 180.6 million Friday.

Investors especially favored large industrial companies, including makers of chemicals, autos and electrical equipment, which are most likely to benefit from a stronger recovery. The rally was broad enough, however, to lift the Standard & Poor's 500, which tracks the wider market, 5.69 points, or 1.4 percent, to a record 425.27, bettering its previous level of 425.09 on Aug. 3.

The Dow's gain propelled it to within 37 points of the record 3,413.21, reached June 1. The NASDAQ Combined Composite index surged 11.19, to 594.20, and the NYSE index rose 2.93, to a record 233.73.

Economists still say that no matter what the Germans do, the United States cannot even hope for brisk economic growth until well into next year. But market analysts said the German rate cuts, and the ensuing bond market gains in the United States, were only some of the reasons for believing that stocks will continue to advance.

"What the German central bank provided was just a catalyst for higher stock prices, which were going to emerge anyway," said Charles I. Clough Jr., chief investment strategist at Merrill Lynch. "This rally is sustainable."

The advances on Wall Street followed gains of more than 2 percent in Tokyo and London, 4 percent in France and 4.4 percent in Germany. The Mexican Bolsa rose 48.72 points, or 3.76 percent, to 1,342.81, for its sharpest jump this year.

The NASDAQ Combined Composite index surged 11.19, to 594.20. The S&P 500 finished up 5.69 at a record 425.27, bettering its previous level of 425.09 on Aug. 3. The NYSE index rose 2.93, to a record 233.73.

In the United States, market watchers saw a scene of lackadaisical investors startled into action. "Mutual fund managers have too much cash to be easily invested," said Laszlo Birinyi, whose investment consulting firm bears his name. "Any time managers make one of these bets and it goes awry, they scurry."

Instead of concentrating on today's stagnant economy, Mr. Birinyi advised looking at the longer range record of a bull market that has plugged along for two years despite scant economic growth. "The stock market's like a movie, not a series of pictures," he said.

Another scene from this movie had short-sellers, who sell borrowed stock on the hope of buying it back later at lower prices, running for cover. Gene J. Seagle, director of technical research at Gruntal & Co., said that New York Stock Exchange short sales had recently reached 900 million shares -- "the largest in history," he said.

Many analysts view heavy short sales as a favorable sign because all those shares eventually have to be bought back. When the market rises, leaving short-sellers with losses, Mr. Seagle said, "These people run very fast."

Four stocks accounted for more than a quarter of yesterday's advance in the Dow: Caterpillar, up 3.625, to 53; Minnesota Mining, up 3.625, to 103; Allied-Signal, up 2.625, to 56; and General Electric, up 2.375, to 77.5.

Automakers also jumped on hopes that lower interest rates here and abroad would enliven the economy. General Motors gained 1.25, to 34.875; Ford 2.625, to 42.875; and Chrysler 1.125, to 22.5, with all three among the 10 most active stocks on the New York exchange. Ford also benefited from several recent reports highlighting the Taurus model's challenge to the Honda Accord for the top spot in U.S. sales.

Many of the companies that appreciated the most yesterday also depend heavily on sales abroad, which would improve if the German rate cut brings stronger growth abroad.

Banks also did well yesterday, with J.P. Morgan up 2, to 62.375, and Chase Manhattan, the nation's second busiest stock on dividend-related trading, up 7/8 , to 23.125.

Broader indexes did not keep pace with the large industrial stocks in the Dow, as the NASDAQ average gained 1.92 percent. The Dow Jones utility average fell 0.44, to 221.39, as investors moved their money to stocks more likely to gain in a recovery.

The market rose 35 points for about half the day's gains in the opening minutes of trading.

As the day ended, analysts spoke less of the economic than the psychological impact of Germany's move. Investors had feared that record German rates and a plummeting dollar left the Federal Reserve no more leeway to massage the American economy.

The stock market's response to the German rate cuts "reflects a turn in investor expectations," said Steven G. Einhorn, chief strategist at Goldman, Sachs and Co. "At least now there is light at the end of the tunnel."

So what if economists still predict slow growth? As Mr. Clough of Merrill Lynch put it, "I've never seen an economic forecast engraved in stone."

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