Stocks rally, drive Dow to new high

WALL STREET

July 27, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks rallied and the Dow Jones industrial average closed at a new high yesterday as economic indicators point to a growing recovery.

Stocks climbed for a second day as sales of existing homes rose for the third straight month, Treasury bond yields declined and overseas equity markets advanced, traders said.

"This is going to be the breakout," said Don Hays, director of investment strategy at Wheat First Butcher & Singer in Richmond, Va.

"We saw the third phase of the bull market start about six weeks ago, but it's been very quiet," and was hampered last week by remarks from Federal Reserve Board Chairman Alan Greenspan pointing to higher interest rates, Mr. Hays said.

The Dow Jones industrial average closed 20.96 points higher at a record 3,567.7 led by J. P. Morgan & Co. and American Telephone & Telegraph Co. The index eclipsed the previous high mark of 3,555.4 set Wednesday.

The 15-stock Dow Jones utilities average also rose to a new high of 248.88, up 1.78 points.

Broader market averages also strengthened. The Standard & Poor's 500 Index ended 1.99 higher at 449.09, and the Nasdaq Combined Composite Index was 4.30 points higher at 704.54. Advancing common stocks led declining issues by 5 to 3 on the New York Stock Exchange.

Trading was moderate, with about 224 million shares changing hands on the Big Board.

The benchmark 30-year U.S. Treasury bond was up more than 1/4 to yield 6.67 percent, down 3 basis points.

Share prices were markedly higher after the National Association of Realtors said sales of existing homes in June rose 1.9 percent to the highest level in five months, with sales in the Northeast jumping 14 percent and in the South by 2.9 percent.

On Friday, Ford Motor Co. and Chrysler Corp. said U.S. new-car sales climbed in mid-July.

Housing and automobiles account for a "huge percentage of the U.S. economy," Mr. Hays said. "It's the improvement in the economy" that fueled yesterday's advance, he said.

Meanwhile, investor sentiment also got a boost from comments by Lehman Brothers Managing Director Elaine Garzarelli, who said she turned even more bullish on U.S. stocks yesterday.

Paul Hennessey, head of equities trading at Boston Co., said: "It seems to me the idea that the market was due for a drop of 8 percent to 10 percent, and interest rates were going to be rising and earnings would be disappointing; all three turned out to be untrue."

In overseas stock markets, Germany's DAX index climbed 23.69 to a 1993 high of 1,854.52 as recent turmoil in the European Exchange Rate Mechanism heightened speculation the Bundesbank would rescue the French franc by cutting German interest rates, traders said. Japanese, British and French markets also rose.

"The German market is very important now because it's the last holdout economically" in the Group of Seven industrialized countries, said Mr. Hays of Wheat First.

The bond market and international stock helped give stocks a boost, "but I don't think you'll see the market go much higher until the budget plan is out of the way in Washington," said Daniel Marciano, senior vice president in trading at Dillon, Read & Co.

Analysts expect that before the Aug. 6 recess Congress will enact a budget that cuts the federal deficit by up to $500 billion over the next five years.

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