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Dow Soars 96 on Results of Campaign '96

Markets: Analyst says rally shows 'relief that there's no change' in Washington's power split. Health-care stocks lead.

November 07, 1996|From Times Staff and Wire Reports

The Dow Jones industrial average thundered Wednesday to its 32nd record of the year, as Wall Street bet that maintaining the political status quo in Washington will keep stocks on their bullish track.

The Dow soared 96.53 points, or 1.6%, to a record 6,177.71, in the largest one-day point gain since March 18 and the sixth-biggest in history.

Trading was very heavy on the New York Stock Exchange, where winners topped losers by more than 2 to 1. Smaller stocks were also broadly higher, but they lagged the gains of blue chips.

The Dow's rally indicated "relief that there's no change" in the power split in Washington, said Richard McCabe, veteran market analyst at Merrill Lynch & Co. in New York.

The Republicans' continued control of Congress means that President Clinton won't be able to push through any major new spending or regulatory initiatives, analysts said.

Indeed, health-care stocks led Wednesday's rally, as investors bet that chances of major health-care reform--which could potentially crimp medical firms' profits--now are virtually nil.

Drug stocks, for example, were up sharply, with Merck soaring 3 1/2 to 79 and Johnson & Johnson leaping 2 1/2 to 52 1/2.

Tobacco stocks also rocketed, with Philip Morris zooming 3 7/8 to 97 3/8. Clinton had made tobacco companies a major political target during the campaign, but the companies have many allies in the Republican Party.

Meanwhile, the bond market failed to rally Wednesday, but analysts noted that yields have been sliding in recent weeks, in part on the expectation that Republican challenger Bob Dole would lose the election.

Had Dole been elected, many analysts said, bond yields would have soared, because there was little faith on Wall Street that Dole's 15% tax cut proposal could be funded without ballooning the federal deficit.

The bellwether 30-year Treasury bond yield inched up to 6.61% Wednesday after hitting a seven-month low of 6.58% on Tuesday.

"We've had a big rally" over the last two months, noted John Burgess, a bond portfolio manager at BT Global Investment Management in New York. "To rally further, we have to get more confirmation that the economy is expanding at a low rate and inflation is under control."

The Treasury sold new 10-year notes Wednesday at an average yield of 6.27%, down from 6.54% at the last auction on Aug. 7. A total of $10 billion in notes were sold out of bids totaling $24.1 billion. Today the Treasury will sell new 30-year bonds.

Wednesday's stock rally also may have been fueled in part by reports that Russian President Boris Yeltsin was doing reasonably well after heart surgery, said Alan Ackerman, investment strategist at Reich & Co. in New York. That news helped boost European markets. The main German stock index jumped 1.4%, and France's key index rose 1.2%.

Whether U.S. stocks can continue their spectacular rally remains to be seen. Some analysts are worried because the Dow is far outpacing indexes of smaller stocks.

The Russell 2,000 index of smaller issues rose just 0.8% Wednesday, half the Dow's gain. The Russell index has been badly trailing the Dow in recent weeks.

"It raises questions about the durability of this advance unless it broadens out," McCabe said.

Among Wednesday's highlights:

* The S&P 500 and NYSE composite indexes hit record highs. The Nasdaq composite soared 16.42 points to 1,245.49 but remains below its 1996 peak.

* Dow stocks leading the rally included DuPont, up 1 3/4 to 96; GE, up 2 7/8 to 101 5/8; IBM, up 3 1/2 to 133 3/8; and Procter & Gamble, up 3 1/8 to 105 1/8.

* Health-care issues up sharply included Pfizer, up 2 7/8 to 88 1/2; Columbia/HCA, up 2 1/4 to 38 7/8; and Oxford Health, which gained 4 5/8 to 51 1/2. Oxford reported strong quarterly earnings Wednesday.

* Technology stocks surged, which some analysts attributed to the defeat of Proposition 211, which would have reduced obstacles to shareholder lawsuits against tech and other firms that disappoint investors.

Compaq jumped 2 7/8 to 73 1/4, Hewlett-Packard gained 1 3/8 to 45 1/2, Microsoft rocketed 3 to 144 1/2 and Dell soared 5 to 87 1/8.

Also, Intel shot up 4 7/8 to 118 7/8. After the market closed, it said current-quarter sales will be sharply above third-quarter sales. The stock reached 120 in after-hours trading.

But Cisco Systems eased 1/2 to 61 1/4, even though the computer networker reported earnings above expectations.

* Intuit, a publisher of personal finance software that Microsoft planned to buy in 1995, soared amid speculation that American Express may want to acquire the company. Intuit shares leaped 7 to 36 1/2.

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