What correction?

The stock market zoomed back yesterday, or at least the part that everybody watches. The Dow Jones industrial average gained 173.38 points, its second biggest point gain ever and 2.6 percent above where it started the day.

Propelled by positive profit reports and perhaps by a lapse in the recent obsession about interest rates and the Federal Reserve, the Dow closed at 6,833.59.

That's 442 points and 6.9 percent higher than its level of less than two weeks ago. A widely watched indicator based on the stock values of 30 big American companies, the Dow is up 6.1 percent this year, and it's now only 3.6 percent below its all-time high of 7,085.16, reached March 11.

Yesterday's action "certainly was a surprise," given the day's slow start, said Robert Freedman, chief investment officer for John Hancock Funds in Boston. But a rallying bond market and healthy profit reports by several big companies helped persuade investors to dive in, he said.

Not all stocks benefited, however.

Rising prices were restricted mainly to big, multinational companies, a pattern that caused some analysts to question the rally's credentials.

"It's troubling that there's this narrowness of the marketplace," said Andrew Brooks, head stock trader with T. Rowe Price Associates Inc. "You don't have things hitting on all cylinders."

The Standard & Poor's 500 index, another big-company gauge, rose 14.24, or 1.9 percent, to 773.61. The technology-laden Nasdaq composite index, made up mainly of smaller companies, climbed 8.79 to 1,212.74 -- only 0.7 percent. The Russell 2,000 list of smaller companies booked a small loss for the day.

Trading volume, another gauge used by analysts to assess the strength of market trends, was 498 million shares on the New York Stock Exchange yesterday, about average for recent months.

In percentage terms, the Dow's jump yesterday wasn't even close to a record -- although it was the biggest percentage gain since 1991.

But in raw points it has been exceeded only by a 186.84-point rebound two days after the "Black Monday" crash of Oct. 19, 1987. And yesterday's rally extends a series of 100-point-plus swings up and down that have been hitting investors all year. A week ago, for example, the Dow rose 135 points in one day.

Why have investors been so fickle? In part, analysts say, it's because they can't make up their minds about whether a long and remarkable record of corporate profit increases is about to end.

Interest rates have risen recently, and a booming economy may compel the Federal Reserve to crank rates up even more on May 20 in the cause of forestalling inflation.

Higher rates hurt companies' bottom lines by boosting borrowing costs and by crimping customers' spending, and rate fears are blamed for many of the stock market's down drafts in the last six weeks.

But the worrywarts have been distracted recently by another banner quarter for corporate profits. Earnings reports for the January-March period flooded across shareholders' desks in recent days, and most have met or exceeded Wall Street's expectations.

"So many growth companies reported strong earnings, and [the stock prices of] many of them have fallen 10 percent to 15 percent in the past couple weeks," said Mike McDermott, a money manager at National City Asset Management Group, which oversees $9 billion. "That's attracting a lot of money."

Also helping bonds was speculation that Congress and the Clinton administration were getting closer to a budget agreement that might include a tax cut on capital gains, although Washington officials denied that there was any agreement.

It's an "out-of-control" rumor, said Larry Haas, an Office of Management and Budget spokesman.

While the economy shows no sign of slowing down, a tame report on the Consumer Price Index last week raised investors' hopes that the Fed won't feel compelled to raise rates quickly and sharply. Bond prices rose yesterday and interest rates fell, with the yield on the Treasury's main 30-year bond dropping to 7.04 percent from 7.09 percent late Monday.

But nobody is predicting that the stock market's oscillations are over.

Important economic reports are due next week, including U.S. employment performance for April and the government's first estimate of first-quarter Gross Domestic Product. Continued economic strength could renew fears of a Fed tightening and send stocks back down.

And some analysts are still concerned about profits.

Retailers, for example, booked "excellent numbers" for the first quarter, said Kenneth Gassman, an analyst with Davenport & Co. in Richmond, Va. But the profit increases came largely from better inventory controls, not necessarily from selling more items, he said. Consumers, he added, aren't spending as freely as they seem to be. "The Fed is bound and determined to keep inflation under control, and the only way you can do that is to raise rates," Gassman said.

Pub Date: 4/23/97

Bloomberg News contributed to this article.

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