Low inflation drives Dow up 174 points Industrials &r bellwether climbs to 7,895.92 after CPI report

'A spectacular day'

'Investors didn't want to miss turnaround,' local analyst says

Wall Street

September 17, 1997|By Bill Atkinson | Bill Atkinson,SUN STAFF Bloomberg News contributed to this article.

The Dow Jones industrial average jumped more than 174 points yesterday after a government report showed that inflation is barely budging even though the economy continues to steam ahead.

The Dow, a bellwether index of 30 blue-chip companies, rose 2.26 percent to close at 7,895.92. It is still 4.4 percent below its Aug. 6 high of 8,259.31 points.

Many stocks began the charge at the opening bell when the Labor Department released statistics that showed the Consumer Price Index rising just 0.2 percent last month, and 1.6 percent for the first eight months of the year, down from 3.2 percent for the same period a year earlier.

The bond market also soared on the announcement with its biggest rally since May 1994. The yield on the 30-year Treasury bond fell to 6.41 percent.

"Once it [the market] got rolling, there was no stopping it," said John Boo, head of Nasdaq trading at Ferris, Baker Watts Inc. in Baltimore. "It was almost like a buy panic. Investors didn't want to miss the turnaround; they don't want to miss the run back up over 8,000."

More than 642 million shares changed hands on the New York Stock Exchange, making it the seventh most-active day ever, and more than three stocks rose for every one that fell.

Technology stocks surged, with the Nasdaq composite index rising 2.06 percent, up 33.68 points to close at 1,668.60.

Microsoft Corp. rose $5.687 to $136.375, rebounding from Monday's 5.3 percent drop, as it introduced an improved product for delivering World Wide Web content via television.

Ascend Communications Inc. rose $1.187 to $33.687, its first gain in five days. Intel Corp. rose $3.75 to $95.812 and Compaq Computer Corp. jumped $5.06 to $69.375.

The Standard & Poor's 500-stock index closed at 945.64 points, climbing 2.81 percent or 25.87 points for the day, while the Russell 2000, an index of many smaller companies, rose 5.01 points, or 1.14 percent, to close at 445.18 points.

Maryland-based companies rallied, too, and a handful reached highs for the year.

Lockheed Martin Corp., the Bethesda-based defense concern, rose $3.94 a share to close at a 52-week high of $109.375. Shares of Legg Mason Inc., the Baltimore-based brokerage and investment banking firm, jumped $3.06 to a high of $65.50.

Mutual fund company T. Rowe Price Associates Inc., based in Baltimore, rose $2.50 to a high of $60.50. Shares of Micros Systems Inc., an information systems company based in Beltsville, rose $2.25 to $44.25.

Kodak fades

While many technology stocks soared, shares of Eastman Kodak Co. dropped to their lowest level in almost two years.

The imaging company's stock fell $3 to $57 the day after it warned investors that third-quarter profit could be half of last year's because of weak film sales and the strong dollar, which cuts into the value of U.S. firms' non-U.S. profits.

Other companies besides Kodak warned of weak earnings.

Polaroid Corp. said it expects profit from operations to grow by double digits this quarter, though not as fast as analysts had projected. Polaroid sank $3.312 to $52.

Economists and stock market experts were exuberant over the CPI numbers, which measure a basket of prices ranging from gasoline to milk to household fuels.

They expect the stock market to continue to climb and shake off disappointing profit announcements by Gillette Co., Procter & Gamble Co. and Coca-Cola Co. that sent the Dow falling weeks ago.

'Boo-hoo period'

"The S&P had a spectacular day," said Peter Canelo, U.S. investment strategist with Morgan Stanley Dean Witter in New York. "The real story is we have gotten through what I call the 'boo-hoo' period of industry announcements. In the next few weeks, we will be back in earnings season. I think, quite clearly, we are going to have a great quarter. The economy is picking up. There is a lot of strength."

Canelo sees the Dow hitting 8,500 to 8,600 by year's end.

Others are just as bullish.

"We are still recommending that people be at zero cash and fully invested," said Jeffrey Applegate, chief investment strategist with New York-based Lehman Brothers, who expects the Dow to reach 8,800 a year from now.

He said the low CPI numbers are further evidence that this is the "best inflation, corporate profit and capacity-creating cycle we have had in this country for 35 years. Good earnings growth, falling interest rates, put all of that in a glass and that is an elixir for the stock market."

As did other economists, David Orr, chief capital markets economist with Charlotte, N.C.-based First Union Corp., expected a higher CPI number. Now, with it being so low, he sees the Federal Reserve standing pat on interest rates when it meets Sept. 30.

"There is no chance" of rates being raised, he said.

Orr sees the economy continuing to roll, which likely will push the market higher.

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