Dow's best 3-year run since '30s In 1997, key index rose 22.64%

S&P 500 up 31%

last day mixed

January 01, 1998|By BLOOMBERG NEWS

NEW YORK -- The Dow Jones industrial average lost ground yesterday but finished its best three-year run since the 1930s, as U.S. stocks were mixed on the last day of 1997.

The stocks of small companies and computer makers such as Compaq Computer Corp. gained amid confidence that a growing economy with low inflation will prolong the market's advance.

The Dow average fell 7.72 to 7,908.25, cutting its gain for the year to 1,459 points, or 22.64 percent. It was the third straight year the average rose more than 20 percent, a first for the 101-year-old average.

"We've had a great run here, and it's continuing," said Roland Machold, who oversees $67 billion as director of the New Jersey Division of Investment, which invests the retirement funds of state employees. "Companies are restructuring, and the economy has provided full employment in a non-inflationary environment. It's a virtuous circle."

Advancing stocks outnumbered decliners by nine to five on the New York Stock Exchange.

The Standard & Poor's 500 index fell 0.41 to 970.43, closing the year with a 31.01 percent gain. The Nasdaq composite index rose 5.33, or 0.3 percent, to 1,570.36, up 21.64 percent.

Few investors and analysts expected outsized returns in 1997. And few predicted another year in which big companies would outperform smaller ones. Yet the Russell 2,000 index, which tracks small- and mid-capitalization companies, lagged the S&P 500. Yesterday, it rose 3.01, or 0.7 percent, to 437.02. For the year, it gained 20.52 percent.

Other broad-market indexes also finished the year strong. The Wilshire 5,000 index, comprising stocks on the New York, American and Nasdaq stock exchanges, climbed 19.81 to 9,298.19, ending up 29.17 percent; the American Stock Exchange composite index added 5.70 to 684.61, finishing 1997 up 19.62 percent; and the S&P 400 midcap index gained 2.46 to 333.37, up 30.44 for the year.

The Bloomberg Maryland Index, which tracks the top 100 companies in the state by market capitalization, closed up 1.89 points at 212.93 yesterday. It gained 34.37 percent this year.

All of those indexes reached records in 1997.

The Dow drop aside, nine stocks rose for every five that fell on the New York Stock Exchange. Some 467 million shares changed hands, below the three-month daily average of 563 million.

Travelers Group Inc., up 12.5 cents yesterday to $53.875, was the Dow's best performer this year, gaining 78 percent. The parent of Salomon Smith Barney Inc., the brokerage and investment bank, thrived amid a surge in mergers and initial stock sales.

Compaq rose $1.75 to $56.50, and gained 90.02 percent for the year.

IBM, which broke a decade-old record in May, rose $1.50 to $104.625, bringing its 1997 gain to 38 percent.

Microsoft Corp. dropped $1 yesterday to $129.25, but still gained 56.43 percent for the year.

CompUSA Inc. said fiscal second-quarter sales at stores open at least a year rose a better-than-expected 8.8 percent on strong demand for personal computers and software.

Chief Executive James Halpin said sales were driven by personal computers priced at less than $1,000, PCs with Intel Corp.'s Pentium II microprocessor, Intuit Inc.'s Quicken accounting software, Broderbund Software Inc.'s Riven computer game and other games. CompUSA rose $1.50 to $31.125.

The stock market's rise this year has been underpinned by declining borrowing costs and expanding profits. Machold, for one, is skeptical that this "perfect world" can last much longer. "But I'd love to be proved wrong."

Still, Machold has sold $3 billion of U.S. shares in the past year and bought international stocks and bonds. He is invested exclusively in developed economies and hasn't bought shares in Southeast Asia.

Douglas Eby, who co-manages the Torray Fund, a mutual fund that has gained an average 38 percent in each of the past three years, is a market pessimist. "This is not sustainable," he said. "And it bodes for lower returns in the market going forward. But we're still optimistic about what we're doing."

Eby's largest holding is AT&T, the No. 1 long-distance telephone company. With telecommunications deregulation, local phone companies pose a threat to AT&T in the long-distance business, Eby said.

"But change like that happens more slowly than people realize," he said. "And AT&T is a marketing machine."

AT&T fell $1.3125 yesterday to close at $61.3125, but is up 49 percent this year. The telecommunications company outperformed all other stocks in the Dow average for two straight quarters.

Concern about slower growth in Asia has hung over the market for months. South Korea's benchmark inflation rate soared to a six-year high in December from the same month a year earlier, as a weaker won forced up prices of oil products and manufactured goods.

International bankers are renegotiating a long-term restructuring

of South Korean debt.

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