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Broad-Based Rally Boosts Blue Chips; Dow Gains 34.03

November 21, 1986|From Times Wire Services

NEW YORK — Wall Street thrust aside its worries about the insider trading scandal and went on a buying spree Thursday, sending stock prices sharply higher in a broad-based quest for blue chips and bargains.

The Dow Jones average of 30 industrial stocks closed at 1,860.66, up 34.03 points from Wednesday's close. When added to Wednesday's 9.42-point gain, the total of 43.45 points wiped out a good share of Monday and Tuesday's combined loss of 56.38 points.

Thursday's gainers outpaced losers by almost 11 to 3 on the New York Stock Exchange, with 1,303 stocks up, 359 down and 349 unchanged.

Big Board volume totaled 158.120 million shares, against 183.29 million on Wednesday.

"There was a lot of uncertainty in the market earlier this week, and that set the stage for the rally," said Ralph J. Acampora, a technical analyst at Kidder, Peabody & Co. "We got a flight into quality, and people got to feel just a little more comfortable."

The market had been shaken by Friday's announcement that well-known arbitrageur Ivan F. Boesky had agreed--among other things--to pay $100 million to settle Security and Exchange Commission insider trading charges, and by other reports indicating that other charges would follow.

Traders worried that the scandal might spread to some of the major investment firms that back takeover deals, weakening prospects that the deals would go through--and weakening demand for the deals' stocks as well.

After edging down Monday, the Dow index plunged 43.31 points on Tuesday for its fourth-steepest loss ever.

Sales of takeover-related stocks, also known as "deal" stocks, dragged the market down. But on Wednesday afternoon, the tide began to turn as traders began buying blue chips in a return to a strategy of buying on fundamentals instead of speculation for quick profits, analysts said.

That trend accelerated Thursday, along with some bargain hunting among deal stocks that had been hit hard earlier in the week.

"Some people are looking for opportunities in deal stocks not connected with Drexel or Boesky," said John Dodd, an analyst at E. F. Hutton.

He was referring to Drexel Burnham Lambert, an investment banking firm that has been heavily involved in takeovers and is now being investigated in connection with the insider trading scandal.

"Shaking the tree got everybody nervous," said Acampora. "I think there are a lot of great deals out there."

Viacom International was up 1 3/8 at 39 5/8, Lear Siegler gained 2 7/8 to 81 7/8, Gillette edged up 1/2 to 58, USX rose 7/8 to 21 5/8 and Transworld was up 2 3/8 at 38 3/8.

Goodyear Leads Active List

Goodyear led the NYSE most active list, rising 1 to 43. The company said it would buy back the 12.5 million shares held by Sir James Goldsmith and his associates at $49.50 a share and would pay $50 per share for another 40 million shares.

Among other gainers, IBM was up 1/2 at 123 1/2, General Motors 1 3/4 at 72 3/4, Eastman Kodak 2 1/2 at 67 5/8, American Express 1 3/8 at 56 1/8 and Sears, Roebuck & Co. 1 3/8 at 42 1/2.

Large blocks of 10,000 or more shares traded on the NYSE totaled 3,330, compared to 3,793 on Wednesday.

Standard & Poor's index of 400 industrials rose 4.98 to 269.51, and S&P's 500-stock composite index gained 4.39 to 242.05.

The bond market's rally stuttered again with weak economic reports failing to ward off profit taking.

The U.S. Treasury's bellwether 30-year bond, up a full point on Wednesday, fell about 1/2 point, with its yield rising to 7.47% from 7.43% late Wednesday.

The Commerce Department said Thursday that consumer spending plunged a record 2% in October, largely because of a big drop in auto sales, while personal income rose a modest 0.4%.

The unexpectedly sharp slump in spending apparently bore out the concerns of many economists that with Americans' incomes growing so slowly, they will be forced to cut back on the spending spree that has provided much of the momentum for economic growth.

A sluggish economy increases the likelihood that interest rates, which move inversely from bond prices, will remain stable or move lower.

Nevertheless, many investors chose to cash in gains made in the market's broad run-up of the past week, analysts said, while anticipating that prices again would be moving higher.

Government bond prices closed near their lows of the day, partly because of the Fed's money supply report, analysts said.

In the secondary market for Treasury bonds, prices of short-term governments were down about 5/32 point, intermediate maturities fell in the range of 3/16 to 3/8 point and long-term issues fell as much as 11/16 point, according to the investment firm of Salomon Bros.

The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.

In corporate trading, industrials fell 3/8 point and utilities were off 1/2 point in active trading.

Among tax-exempt municipal bonds, general obligations were down 3/8 and revenue bonds fell point in light trading.

Yields on three-month Treasury bills rose 7 basis points to 5.39%, while six-month bills rose 8 basis points to 5.44%.

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