Optimism over economy, earnings propel Dow to another high

January 11, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks surged, with shares of automobile and telephone companies setting the pace, amid optimism about the economy and corporate earnings.

The Dow Jones industrial average rose to a record for the fourth straight session, climbing 44.74 to 3,865.51. Gains in Procter & Gamble Co., Aluminum Co. of America and General Motors Corp. fueled the advance. Last week, the Dow industrials climbed 66.68 points.

"People continue to recognize that the economic outlook is good," said Peter Canelo, chief investment strategist at NatWest Securities. Last week's reports on job growth, late-December car sales and factory orders encouraged investors to buy stocks of the companies that are the most sensitive to changes in the economy, he said.

Chrysler Corp. jumped $1.625, to $58.75; Ford Motor Co. spurted $2.625, to $67.25; and GM advanced $1.375, to $59.25. Meetings with auto company officials at the Detroit Auto Show led some analysts to raise earnings estimates and repeat positive investment opinions.

Investors are "going to see continued strength" in auto stocks, partly because the average U.S. car is about eight years old and needs replacing, said Jim Benning, a trader at BT Brokerage.

Among broader market measures, the Standard & Poor's 500 Index gained 5.37, to 475.27, topping a record set Dec. 28.

The Dow Jones transportation average surged 20.37, to a record 1,819.58, breaking last week's 1,802.21. The rise was led by Norfolk Southern Corp., up $1.375, to $73; AMR Corp., ahead $1.25, to $70.75; and CSX Corp., up $1.25, to $86.50.

The Nasdaq Combined Composite Index increased 3.75, to 786.69, near its Oct. 15 record of 787.42.

The American Stock Exchange Market Value Index fell 0.71, to 478.78.

Almost 11 stocks advanced for every seven that declined on the New York Stock Exchange, where 317.6 million shares changed hands.

Corporate earnings could grow as much as 15 percent this year, tTC

translating into a 10 percent advance in the S&P 500 index, said Gene Grandone, senior investment counselor at Northern Investment Counselors, a unit of Northern Trust Co. in Chicago with $6 billion in assets.

"Inflation just doesn't seem to be a problem, and that means we can see some fairly decent economic growth and earnings growth without overheating the economy," he said.

Northern Trust has been putting more money into stocks like ADC Telecommunications Inc., Electronic Arts Inc., Perrigo Co. and Solectron Corp. and avoiding most drug and consumer companies.

"The winners in the 1980s are not going to prove the winners of the 1990s," Mr. Grandone said.

Looking ahead, some analysts are optimistic stocks will advance further. The Dow industrials "are going to get over 3,900, and close to 4,000, before this is over," said NatWest's Mr. Canelo. Recent highs in the Dow Jones transportation average and Nasdaq Combined Industrial Index confirm the broader market's strength, he said. The Nasdaq industrials rose 4.18, to a record 822.97 yesterday.

Interest rates aren't an obstacle to higher share prices, either. "If the U.S. economy is going to grow at 3 percent this year, inflation may remain subdued in the first quarter," said Alan Ackerman, executive vice president at Reich & Co.

Long-term interest rates were virtually unchanged yesterday. The yield on the benchmark 30-year Treasury bond rose to 6.24 percent from 6.23 percent Friday, after having earlier climbed to 6.28 percent.

Bond prices got a boost from lower crude oil and precious metals prices. That dampened inflation expectations.

West Texas Intermediate oil for delivery next month dropped 65 cents yesterday, to $14.67 a barrel. Gold bullion for February delivery fell $1.50 an ounce, to $385.70, after dropping as low as $381.80.

Regional Bell telephone companies and computer software stocks rose as U S West Inc. said it will invest $750 million over two years to connect about 750,000 homes with new video services. Meanwhile, reports said Bell Atlantic Corp. will select Oracle Corp. to supply multimedia equipment and software to deliver interactive shopping services and movies on demand.

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