Forget stock-picking. Bring back index funds. The stock market has acquired a momentum of its own.
The Dow Jones industrial average, after breaking through the 3500 mark Wednesday, staged another growth spurt in the last half hour of trading to close at 3523.28, up 23.25 points.
Traders said Friday’s expiration of stock-index futures contracts contributed to the late surge. Trading in New York Stock Exchange-listed stocks was heavy at 280 million shares. Thursday’s advance was broad-based. The Standard & Poor’s 500 index added 3.02 points to 450.99. The Nasdaq composite index climbed 7 points to 697.43.
Bond prices slipped in late trading after the Federal Reserve reported an unexpected increase in the nation’s money supply, which implies future inflationary pressures. The 30-year Treasury bond yield, which moves opposite to the bond’s price, inched up to 6.99 percent from 6.97 percent.
Alfred Goldman, technical market analyst for A.G. Edwards & Sons in St. Louis, said that normally the stock market will take a breather after a big day like Wednesday, when the Dow industrials staged an 80-point swing. “That was true until the last half hour” Thursday, when computerized “buy” programs hit the market and traders on the sidelines rushed to get in on the action, he said.
After weeks of worrying about overvaluations in stocks and increasingly uncertain economic policies in Washington, the momentum of the long-term bull market has reasserted itself, at least for a while, Goldman said.
Goldman believes the rally has some life yet, but he’s not looking for major upward moves in the near term.
Analysts continued to cite the quantity of money flowing out of
savings accounts and into stock mutual funds as another major factor in the market gains. But serious investors looking for values in individual stocks are having a harder time, said Gary Prestopino, analyst at Mesirow Financial in Chicago.
“We are having a difficult time finding undervalued quality companies,” he said. “You’ve got to do a lot more digging and a lot more work. Two years ago it was like hunting buffalo.”
Three local stocks that Prestopino believes fit the bill in this investment climate are toy model-maker Revell-Monogram, one of the shakier local initial public offerings of recent years; Quixote, a diversified manufacturer of highway crash barriers; and Duplex Products, a manufacturer of business forms. Each company has undergone positive significant changes that may not have been recognized yet in the stock market, Prestopino said.
Local news
– Chicago-based Quaker Oats climbed 62 cents, to a 365-day closing high of $73.12. At one point Thursday the stock was as high as $76.50. During the day, Goldman, Sachs & Co. analyst Nomi Ghez cut her rating on the stock, saying, “It ran up too fast, too high; long term, it’s OK,” according to Dow Jones News Service. On Wednesday, Quaker announced the purchase of a competitor in the rice-cake business, H.J. Heinz’s Chico-San.
– Varlen, a Naperville-based auto supplier, apparently is having a successful road show, with its executives discussing a planned offering of $50 million in convertible debt. The stock pierced its 365-day high of $35.25 Thursday before closing at $34.50, up 25 cents for the day. On Thursday, Standard & Poor’s assigned a B-plus rating to the convertible debt securities. S&P cited the company’s “good niche business positions and moderately high financial risk profile.” On Wednesday, Moody’s Investors Service gave the security its B-2 rating with similar comments.
– Juno Lighting of Des Plaines gained $1.50, to $18.25. Elliott Schlang, who follows a portfolio of Midwest stocks for Kidder, Peabody & Co., issued an “aggressive buy” recommendation on Juno, which has been one of his favorites for years.
Among other things, Schlang said he was encouraged by the recent report of an increase in housing starts. Juno is a leading manufacturer of track-lighting fixtures for residential and commercial construction.
