Stocks rocket to new highs

Buying rampage sends Dow industrials up 233 points to 9,544

Nasdaq scampers to 2,320

Intel adds $6.25, Gucci climbs $12.8125, Yahoo! leaps $33.125

January 07, 1999|By Sean Somerville | Sean Somerville,SUN STAFF

U.S. stocks soared yesterday as investors poured cash into the market, pushing the Dow Jones industrial average up 233.78 points to a record-high close of 9,544.77.

The third day of a 1999 buying spree also sent the Nasdaq composite and Standard & Poor's 500 indexes to records. The Standard & Poor's 500 climbed 27.56, or 2.2 percent, to 1,272.34.

The technology-laden Nasdaq composite advanced 69.59, or 3.1 percent, to 2,320.86.

Volume on the New York Stock Exchange totaled 986 million shares, making yesterday the fifth-busiest ever on the Big Board.

On the Nasdaq stock market, 1.2 billion shares changed hands, the most in a month.

"This is a liquidity-driven market," said Hugh Johnson, chief investment officer of First Albany Corp.

"I'd like to be able to say there was some fundamental event that inspired investors to buy stocks today. I would like to say the outlook for the economy improved and the outlook for earnings brightened. But it was none of that."

The broad-based rally was fueled by cash being put to work from 1998 bonuses, 401(k) plans and pension plans.

The Dow's 2.5 percent increase pushed the index above 9,500 for the first time, easily topping its Nov. 23 closing high of 9,374.27.

"It was pretty spectacular," said Bob Freedman, chief investment officer of John Hancock Funds.

"It's generally been a large-cap rally. People have realized it doesn't make a lot of sense to try to time this market."

Johnson said investors learned a valuable lesson in last year's fourth quarter: "We learned if you hold cash for more than 30 seconds, your performance will suffer."

Some fund managers who generally hold "value stocks," which have low price-to-earnings ratios, have bailed out, said George Jennison, managing director of Nasdaq trading at Wheat First Union.

"That money's going to large-cap stocks."

Airline stocks were strong for a second day amid optimism for increased passenger traffic and a healthy economy, analysts said. AMR Corp. rose $3.8125, or 6 percent, to $67.875.

Automakers' shares rose on higher-than-expected December sales. General Motors Corp. rose $3.4375, or 4.6 percent, to $78.0625, contributing 14 points to the Dow average's gain. DaimlerChrysler AG added $1.875, to $108. Ford Motor Co. rose $2.25, to $61.75.

Amazon.com Inc. rose $13.50, or 10.8 percent, to $138 on optimism that the No. 1 online book and music retailer's sales will continue to surge as more people shop on the Internet. Yahoo! Inc. rose $33.125, to $291.

"I don't even know if there is a language on Earth to describe the performance of Yahoo!," Johnson said.

Experts said stocks were held down in the fourth quarter by a series of warnings that earnings would fall short of expectations. "We've had fewer companies come in with expectations of lower earnings," Freedman said.

Peter Canelo, U.S. investment strategist at Morgan Stanley Dean Witter, said the Dow could reach 10,000 or maybe even 10,500 much earlier this year than he had expected.

The dollar's devaluation against foreign currencies, healthy earnings growth and only a slight slowdown in the economy's growth all bode well for stockholders, he said. "I don't see any risk of a recession."

"It's probably inevitable we're going to get to 10,000, maybe in this move," Freedman said. "But it's a psychological thing and we'll probably pull back from that. It may be too much, too soon."

Eventually, the cash infusion will slow and investors will start to look at whether earnings growth supports stocks at their current high multiples, several market experts said.

"This is what I would call a buying climax," said Robert Brown, market strategist at Ferris, Baker Watts in Baltimore.

With 10,000 so close, holders are reluctant to take profit, driving prices up for buyers. "The market is climbing a wall of bliss and that could be dangerous," Brown said. He predicted that the market might cool down in a couple of weeks.

Jennison said: "It wouldn't surprise me to see a rally through January, then people are going to start worrying about fourth-quarter earnings. Then you're going to see some pressure on the market. It wouldn't surprise me to see [the Dow] touch 8,000 and 10,000 this year."

Freedman said the key questions are whether interest rates will move down and whether there's enough growth to support current price-earnings ratios. "We're not completely out of the woods from the Asian crisis," he said. "If stocks get too far ahead of valuations, we could see another correction."

The Russell 2,000 index of small-cap stocks, which lagged behind the broader market last year, rose 5.70, to 427.79; the Wilshire 5,000 index jumped 230.32, to 11,661.19, its second straight record; the New York Stock Exchange composite index climbed 11.10, to 611.01, also a record; the American Stock Exchange composite index surged 9.26, to 701.47, its first finish over 700 since July; and the S&P 400 midcap index added 4.75, to 395.13, also a record.

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