Dow soars record 257 points as summer break ends
Sep. 02, 1997
NEW YORK (AP) _ The Dow Jones industrial average surged a record 257 points on Tuesday as summer break ended with a break from the string of unsettling economic news that unnerved the markets during August.
The Dow rose 257.36 to 7,879.78, wiping out most of last week's 265-point slide. It was the biggest one-day point gain ever for the Dow, beating a nearly 10-year old record of 186.84 points that came two days after the Black Monday crash of October 1987.
In percentage terms, Tuesday's 3.4 percent gain was only one-third as big as the 10.1 percent rally represented by the 1987 record. Still, it was the biggest percentage gain in more than six years.
Broader stock indicators also rallied on Tuesday as interest rates fell in the bond market following the release of the first major reading on last month's economic activity.
The Standard & Poor's 500-stock list set a new point-gain record as well, also breaking a mark dating from the 1987 crash rebound, and the Russell 2000 list of smaller companies closed at a record high for the fourth consecutive session.
Rattled by a series of reports suggesting the economy might be accelerating at an inflationary pace, investors were heartened Tuesday to find out that manufacturing growth slowed in August, according to a survey of factory executives by the National Association of Purchasing Managers.
The rally halted what some expected would become the first 10 percent pullback for the blue-chip sector since early in the decade. The Dow now sits about 380 points, or 4.6 percent, below Aug. 6's record high of 8,259.31 after sliding by as much as 7.7 percent from that mark through Friday.
"Once again we've been challenged by a host of potential threats that are now near-misses," said Joe Battipaglia, chief investment strategist at Gruntal & Co. "Investment managers, who are now coming back to work, are looking at what the market has to offer and see better prices than a few weeks ago."
Tuesday's report _ which also revealed a modest increase in raw materials prices after a startling jump during the prior month _ ran counter to a more robust reading on Midwestern manufacturing activity on Friday.
The markets bristled repeatedly last month as it became less certain that the economic pace was modest enough to keep inflation in check without a boost in interest rates at the Federal Reserve. Higher interest rates can ease inflationary pressures by slowing consumer borrowing, but can also hurt company profits.
"There was an overreaction coming into (Tuesday). The report speaks of balance and evenness in the economy, which is the proper interpretation," said Battipaglia.
However, bond-market reaction to Tuesday's data was more restrained, reflecting jitters while awaiting Friday's pivotal reading on August payroll and wage levels. Employment costs typically constitute two-thirds of a product's price.
"The bond market knows that that employment report is crucial to deciding the outcome the next Fed (strategy) meeting" later this month, said Johnson. "If we don't see upward pressure on hourly wages, then we're safe."
The day's biggest winners included several popular stocks that had been beaten down by profit-taking last month.
The Dow's strongest components, for example, included Procter & Gamble, up 4 7/8 to 138; Merck, up 3 7/8 to 95 11/16; General Electric, up 3 5/8 to 66 3/16; and Coca-Cola, up 2 9/16 to 59 7/8.
"Consumer non-cyclicals had been worst performing sector for the last four weeks. Today it's the best performing sector," said Johnson. "That says that in large part, this is bottom-fishing or bargain-hunting, and makes us question how sustainable (the rally) is."
Financial-services companies, which enjoy a stronger lending business when interest rates aren't rising, were also prominent among the Dow's gainers: J.P. Morgan rose 4 5/16 to 111 13/16.
Advancing issues outnumbered decliners by a nearly 3-to-1 margin on the New York Stock Exchange, where volume was up sharply from last week's sluggish pace, but still fairly modest at 491.83 million shares as of 4 p.m.
The S&P 500 rose 28.11 to 927.58, easily surpassing the previous record of 21.55 points gained Oct. 21, 1987.
The NYSE composite index rose 12.42 to 482.90, and the technology-heavy Nasdaq composite index rose 30.77 to 1,618.09, led by Microsoft, which rose 5 to 137 3/16.
The Russell 2000 rose 4.62 to 428.05 for its seventh straight winning session. The American Stock Exchange composite index, which is dominated by smaller companies, rose 6.71 to 656.87 for its first record close since Aug. 6.
Overseas, Tokyo's Nikkei stock average rose 1.4 percent, Frankfurt's DAX index rose 3.6 percent and London's FT-SE 100 rose 1.7 percent.