Dow Jumps 50 to Highest Close Since Aug. 15

Stock prices rocketed higher Wednesday as more investors joined the rapidly growing camp that sees a short war and a short recession.

The Dow Jones industrial average jumped 50.50 points, or 1.9%, to 2,713.12. It was the Dow’s highest close since 2,748.27 last Aug. 15--when the market was in a virtual free fall after Iraq’s invasion of Kuwait.

Trading was heavy, with 226.79 million shares changing hands on the New York Stock Exchange. Analysts said some investors were stampeding into stocks, fearful of being left behind by the market’s continuing advance. The frenzy drove many stocks up more than 5% for the day.

Stocks have been surging since the Persian Gulf War began on Jan. 17, as investors have been heartened by Iraq’s seeming inability to strike back. Even an Iraqi assault on a Saudi border town Wednesday failed to dent investors’ belief that Saddam Hussein’s days are numbered.

Indeed, some traders said the market took strength on Wednesday from a midday press briefing by Gen. H. Norman Schwarzkopf, commander of Operation Desert Storm. “He talked very, very upbeat,” said Thomas Walsh, trader at Nikko Securities in New York.

The expectation of a short war has bolstered the view that the economic recession, as well, will end by midyear. A quick victory over Iraq should in theory restore consumer and business confidence and lead to renewed spending and investment--and thus higher corporate profits.

“People see a recovery late in 1991 and think it’s right to be buying stocks now,” said Jeff Kaminsky, trader at Mabon Nugent & Co. in New York.

Optimism about an economic recovery was buoyed by President Bush’s State of the Union address on Tuesday evening, some traders said. Bush’s emphatic call for lower interest rates “now” convinced more investors that the Federal Reserve will continue to cut rates, assuring that the economy will soon emerge from the recession.

Also Wednesday, the Commerce Department reported that the index of leading economic indicators rose 0.1% in December, after six straight monthly declines.

Faced with new evidence that the recession may not last much longer, investors have been most eager to buy stocks of industrial and technology companies, whose goods should be in strong demand in a rejuvenated economy.

Already, many technology companies have shown that, despite the recession, their sales have fared reasonably well in recent months. That could mean dramatically higher sales and profits for them if confidence returns across the broad spectrum of the economy.

“There has been a very significant change in psychology about these (industrial and tech) stocks in the last two months,” said Mike Kucera, partner at money manager Wedge Capital in Charlotte, N.C.

His fund has been a big owner of aluminum stocks, such as Alcoa and Reynolds Metals. Even as the economy slowed in the fourth quarter, Alcoa still was operating its plants at 101% of capacity, Kucera said. Given the widespread plant closings and restructurings that many industrial companies undertook in the 1980s, investors may now be recognizing that the companies are in far better shape to weather short-term economic trouble, he said.

That underlying strength, coupled with expectations of economic growth resuming by midyear, could drive industrial stocks far higher in the near term, many experts say.

“They all look good assuming we’re going to have an economic recovery,” Kucera said.

But he cautioned that investors who bet too heavily on industrial stocks now could wind up in trouble, because the evidence isn’t yet overwhelming that the recession will be short and shallow--or that it will be followed by strong growth. “If we get only very slow economic growth this year and in 1992, then the stocks are ahead of themselves,” Kucera said.

Scott Black, money manager at Delphi Capital in New York, also warned that the market advance has taken on a life of its own. After nearly two straight weeks of gains for many stocks, he said, many buyers are jumping in just to play the market’s momentum, not for good fundamental reasons.

“There seems to be some ‘greater fool’ investing going on now,” Black said. “People are afraid of being out of stocks,” and that herd mentality often signals at least a short-term top in the market.

Analysts noted Wednesday that short sellers--traders who sell stock they don’t own, expecting prices to drop--were panic-buying to cover their positions, after facing huge losses as the market has headed north since mid-January. That kind of buying can cause stocks to jump far faster than they otherwise would, but that buying also is unsustainable.

Among the market highlights:

* Industrial stock winners Wednesday included GM, up 1 5/8 to 35 1/2, Ford, up 1 1/8 to 27 7/8, nickel producer Inco, up 1 1/8 to 27 3/4, and GE, up 1 3/8 to 62.

* Tech stocks were led higher by IBM, up 2 1/2 to 127, Compaq, up 3 1/2 to 66 3/4, Digital Equipment, up 2 3/4 to 72 3/4, and Microsoft, up 3 3/4 to 96 1/4.

* Retailers gained on optimism about a return of consumer confidence. Dayton Hudson rose 1 7/8 to 63, May gained 2 to 46 1/2, Gap jumped 2 to 42 and Limited added 1 1/4 to 21 3/4.

* Airlines, severely depressed on recession worries, also bounced up. AMR, parent of American, rocketed 2 3/8 to 54 3/4. USAir jumped 1 5/8 to 20 7/8 and Southwest rose 1 to 22 7/8.

* Smaller stocks continued to perform even better than blue chips, which has been true almost every day since the war rally began. The NASD composite index of over-the-counter stocks jumped 7.92 points to 408.53, a 2% advance compared with a 1.5% rise for the S&P; 500 blue-chip stocks.

Among Southland OTC issues up sharply on Wednesday, PacifiCare soared 3 to 23, American Ecology gained 1 3/8 to 7 3/4, Syncor International rose 3/4 to 12 3/4 and Teradata added 1 1/8 to 14 7/8.

In overseas trading, London stocks jumped on optimism about the Gulf War. The Financial Times 100 index soared 38.8 points, or 1.8%, to 2,152.60.

German stocks also were up sharply. The Frankfurt market’s DAX index rose 20.47 points, or 1.5%, to 1,400.73.

In Tokyo, the Nikkei average was hit by profit taking. It lost 50.51 points to 23,409.61. BAROMETER UP

The index of leading indicators rose a slight 0.1% in December. D3

LEADING THE MARKET Industrial and technology stocks powered Wednesday’s market surge. A sampling:

Wed. Point Pct. Stock close chng. chng. Eaton 55 1/4 +5 +10.0% Alcoa 65 +3 3/4 +6.1% AST Research 45 +2 1/2 +5.9% Compaq 66 3/4 +3 1/2 +5.5% Deere 54 3/8 +2 5/8 +5.1% Phelps Dodge 59 3/4 +2 1/2 +4.4% Illinois Tool 53 5/8 +2 1/8 +4.1% Dow avg. 2,713.12 +50.50 +1.9%