NEW YORK — Gloom gave way to euphoria Tuesday on Wall Street when a faint promise of better economic times ahead lifted investors' spirits and propelled the Dow Jones industrial average to its third-best performance ever for a single day.
After gaining steam all day, the closely watched index of 30 blue chip stocks roared to a 2,297.94 finish, up 54.74 points, or 2.44%, from Friday's close. The market was closed Monday for the Memorial Day holiday.
"This was a 180-degree mood change from gloom and doom to everything's coming up roses" in just three market sessions, marveled Alfred E. Goldman, director of technical research for the A. G. Edwards investment firm in St. Louis. After suffering a combined 56.65-point loss the first three days of last week--largely over inflationary worries--the Dow registered small gains last Thursday and Friday.
Tuesday's psychological flip-flop began early in the day: U.S. investors awoke to find the dollar surging in value against the Japanese yen and most other foreign currencies.
"The market had been wanting to cut its cord to the gloom and doom, and this was the chance," said Gene Seagle, research director for the Gruntal & Co. investment firm.
As the dollar rose, investors instantly shed their nagging fears about rising interest rates and bought bonds, whose prices move inversely to interest rates.
Just as suddenly, they lost their interest in gold and other investments that work as hedges against a weak dollar. As a result, commodities prices fell sharply. On the Commodity Exchange, for example, the gold futures contract for May delivery fell $12.60 an ounce to $451.40.
The depressed commodities markets in turn eased investors' fears that the country is headed for another round of inflation, which would depress stock prices.
Investors' suddenly bullish sentiment was reinforced by a statement from Beryl W.Sprinkel, chairman of President Reagan's Council of Economic Advisers.
Speaking for the Reagan Administration, Sprinkel echoed what many stock analysts have been saying and many investors have been hoping for several weeks: "Concerns of a significant reacceleration of inflation are misplaced."
Cheered by these fragments of optimism, investors inspired strong rallies in both the stock and bond markets.
The Treasury's bellwether 30-year bond registered a strong gain of 2.125 points. And stocks staged a broad rally: Advancing issues outstripped decliners by four to one on the New York Stock Exchange, Standard & Poor's index of 500 stocks rose 6.95 points, or 2.46%, to 289.11 and the New York Stock Exchange composite index gained 3.67 points, or 2.30%, to finish at 162.72.
Trading Pace Moderate
Only one problem was apparent Tuesday: mediocre volume. Only 152.46 million shares were traded on the New York Stock Exchange, giving analysts cause to temper their predictions for a renewed rally.
"Everyone is so confused that they're just grasping at straws," market analyst Goldman said. "The uncertainties everyone had about the economy last week haven't left. And as low as that volume was, we could see (the market) head south tomorrow just as far as it moved up today."
Allegis the Volume Leader
Tuesday's volume leader, Allegis Corp., rose $5 a share to close at $76.25, after an investor group led by Coniston Partners announced that it had acquired a 13% interest in Allegis, the parent company of United Airlines, and wants to take control of the board and reshape the company.
AT&T was up 7/8 at 26, Navistar rose 3/8 to 8 1/2 and American Express advanced 1 7/8 to 35. Shearson Lehman Bros., an American Express subsidiary, said it acquired all the issued and outstanding stock of Industrial Holdings Corp. from Standard Oil for about $1.8 billion.
General Electric gained 2 1/2 at 53, Pepsico was up 1 3/8 at 34, Greyhound jumped 4 1/8 to 46 and IBM rose 4 to 160 5/8.
In the secondary market for Treasury bonds, prices of short-term governments rose between 5/16 point and 17/32 point, intermediate maturities ranged from 13/16 point to more than 1 1/2 points higher and 20-year issues were up more than 2 1/2 points, according to the investment firm Salomon Bros. Inc.
In corporate trading, industrials were up 1 point and utlities rose 2 points in moderate to light trading, according to Salomon Bros.
The federal funds rate, the interest on overnight loans between banks, traded at 7.125%, up from 6.75% late Friday.