Rally in drug stocks helps boost Dow by 14.86


November 12, 1992|By Bloomberg Business News

NEW YORK -- Stocks, led by drug company issues, increased yesterday as investors concluded that the Clinton administration would not bring immediate health care reforms that would curb drug prices.

The notion that President-elect Bill Clinton will not immediately be able to adopt a health care policy breathed life into the battered drug group. The rise in stocks also reflects the perception that companies with steady earnings growth will perform best in a sluggish economy.

The Dow Jones industrial average, led by Merck and Procter & Gamble, gained 14.86, to 3,240.33. The Standard & Poor's 500 surged 3.58, to 422.20. The NASDAQ Composite soared 7.15, to 634.91.

Advancing stocks outnumbered decliners by 2-to-1 on the New York Stock Exchange. Trading was the busiest in three weeks despite Veterans Day observances that closed government offices and the bond market. About 240 million shares changed hands on the Big Board.

"Drug stocks got beat up because people thought Clinton would put restrictions on drug prices," said Kenneth Ducey, director of trading at BTBrokerage. "A lot of people have discounted that."

In general, "people are not terribly scared Clinton's going to do something right away" to overstimulate the economy, said Richard Ciardullo, director of trading at Eagle Asset Management.

The belief that a stimulus package will take time to institute, combined with Tuesday's report that wholesale prices rose only 0.1 percent in October, prompted investors to snap up growth stocks on the belief that the economy will not suddenly spring back to life.

Drug stocks were also helped by a spate of good industry news, including a much-debated new study that shows that there are some benefitsof treatment with Warner-Lambert Co.'s Alzheimer's drug Cognex.

"It was just a matter of time before people started buying [drug stocks] in a big way," said Jack Lamberton, analyst at County NatWest Securities.

Merck jumped $2, to $44.875; Bristol-Myers Squibb rose $2.125, to $68.50; and Warner-Lambert Co. soared $1.875, to $69.375.

Biotechnology shares also rallied, which again focused the spotlight onover-the-counter stocks.

"The catalyst is the strength of the over-the-counter market," said Thomas Gallagher, managing director for capital commitment at Oppenheimer & Co. That strength, he said, may reflect "an enormous amount of short-covering."

On the Veterans Day holidays from 1945 to 1990, the stock market rose 80 percent of the time, said Philip Smyth of Birinyi Associates.


The U.S. government securities market was closed yesterday in observance of Veterans Day.

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