Wall Street rockets to record high Dow jumps 214 points, lifting investors above their recent miseries

'We're off to the races'

Overseas economies, Greenspan help fuel recovery since July

November 24, 1998|By Jay Hancock | Jay Hancock,SUN STAFF

Fueled by an indulgent Alan Greenspan and glimmers of recovery in overseas economies, the Dow Jones industrial average roared to a record high yesterday, erasing more pain from last summer's dive.

The Dow rose 214.72 points to close at 9,374.27, more than 36 points higher than its previous record close, which came July 17. In four months, the Dow has plunged 19.3 percent on fears of a global economic meltdown -- and then clawed its way back up.

"Remember that disaster and deflation and depression that we talked about last summer?" said J. Patrick Bradley, economist and market-watcher for Mercantile Bankshares Corp. "Well, forget about that. We're off to the races now."

The Dow ended yesterday more than 1,800 points higher than its low for the year of 7,539.07, plumbed Aug. 31. For the year, the Dow is up 18.54 percent.

Other stock indexes also rose yesterday. The Standard & Poor's 500 index increased by 24.66 points to 1,188.21, a record. The Nasdaq composite index, heavy with technology issues, went up by 49.21 to 1,977.42, short of its record of 2,014.25, reached July 20.

The immediate cause of yesterday's pop appeared to be merger news. Deutsche Bank AG said it was negotiating a $9.7 billion combination with Bankers Trust Corp., and America Online Inc. announced that it was in talks to buy Netscape Communications Corp.

Corporate courtship on such a big scale revealed an infectious economic confidence among executives and prompted hope that other deals will follow, analysts said.

But analysts assigned most of the credit for stocks' renewed vigor -- those who think stocks are too expensive would say the "blame" -- to Alan Greenspan, chairman of the Federal Reserve.

Greenspan has presided over three cuts in short-term interest in seven weeks, expanding the U.S. money supply and easing fears that the country will fall into recession next year.

"The Fed is basically saying, 'Hey, go for it,' " said Gil Knight, a portfolio manager for Allied Investment Advisors in Baltimore. "Plus, you're seeing a lot of signs overseas that maybe things are getting better. All of the sudden, people who a month ago were scared to death are now saying, 'Gee, we can't get enough money into the stock market.' "

Asia has been the source of much economic uncertainty. Economic collapse in Japan, South Korea, Thailand and elsewhere prompted worries about U.S. exporters' profits as well as wider economic infection on this side of the globe.

Brazil has been the most recent worry spot. But a bailout package for Brazil and slow but apparent reform in Japan have many investors breathing easier in recent weeks.

And, despite slower corporate profit growth in the third quarter, some analysts believe that profits can accelerate again next year.

"It looks like economic growth is going to continue. And there's no inflation," said David Straus, senior portfolio manager for Washington-based J. L. Capital Management Inc., a subsidiary of Johnston, Lemon & Co. Between overseas investors continuing to seek havens and individual Americans saving for retirement,

"there's a lot of money to go into the market," he said.

Technology shares set the pace yesterday. Taking a cue from the incipient match of America Online and Netscape, Internet stocks in particular did well. Netscape rose $2.75, to $41.9375, and was the most active stock in U.S. trading. America Online rose $4.375, to $89.25.

Yahoo! Inc. rose $30.438 to close at $221.438. Amazon.com Inc. gained $37.375, to $218.

Not everyone is comfortable with stocks' present altitude. Even if Asia starts to recover and the United States avoids recession, corporate profits will have a hard time meeting investors' expectations, many believe.

"The bulls will say that they've been proven right again, that any dip is a buying opportunity," said Raymond F. DeVoe, publisher of the DeVoe Report, a New York-based investment newsletter. "I'm not ready to say that the bear market is dead yet. I just don't see any value out there."

But for now, many pros who make a living investing other people's money feel that they must be in stocks whether they represent good value or not.

"They've all piled in," said Straus. "In this business the performance pressures are intense. And, if things start to move and you're not in the stocks that are participating, and you're left behind, you'd at least like to match the performance of the market, even if you're not going to beat it."

Pub Date: 11/24/98

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