Investors went on another stock-buying spree yesterday and pushed the Dow Jones Industrial Average to its highest level since Aug. 20, 1981.
More than 130.9 million shares changed hands during the third-heaviest trading day in New York Stock Exchange history, although the pace slowed in the final two hours of trading. During the first hour alone, 40 million shares of stock were bought and sold.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 149.77 million shares.
The Dow Jones average closed up 15.73 points at 925.13. Since the stock market rally began on Aug. 13, the Dow average has climbed 148.21 points, or 19 percent.
While the stock market continued to rally, so did other securities. The prices of some Treasury bonds were up as much as $6 on a face value of $1,000, while corporate bonds were up about $2.50. The sharp decline in interest rates during the past eight weeks was instrumental in touching off the stock market rally.
Larry Wachtel of the brokerage firm Bache Halsey Stuart Shields Inc. called the huge volume of trading yesterday "remarkable." Normally the final session before a three-day weekend is a slow one as investors flee for vacations rather than calling their brokers.
Foreigners were heavy buyers of U.S. stocks yesterday, and European and South American orders were a major factor in the huge volume during the first hour after the bell sounded at 10 a.m. to open trading on the NYSE.
The rally began after six weeks of steadily declining interest rates and passage of a tax increase apparently gave investors confidence that the record interest rates of most of the past three years were over.
At first the buying was confined almost totally to institutional investors such as pension funds and life insurance companies, who usually buy and sell stock in blocks of 10,000 shares or more. At first individual investors seemed content to stay out of the market, even though institutions were buying and selling stocks at a record pace.
Until Aug. 18, there had never been a day when more than 100 million shares of stock were traded on the NYSE. Since then, more than 130 million shares have changed hands on three separate days, and volume topped 100 million on three other occasions.
Jerry Hinkle, chief trader for Sanford C. Bernstein & Co., a brokerage firm that deals almost exclusively with institutional investors, said his clients still show an overwhleming desire to buy stocks.
Like most other investors, institutions had been content for the past few years to put their funds in high-yielding securities such as Treasury bills or money market mutual funds, earning 15 or 16 percent without the risks inherent in owning stocks.
But as interest rates have declined dramatically, stocks have become a much more attractive investment -- despite the continued weakness of the economy and rising numbers of companies in financial straits. In the past few days, the initially reluctant individual investor has become more interested in buying stocks, too, in part because the interest rates offered by money market mutual funds are declining sharply as high-yielding securities mature and are replaced by lower-yielding investments.
The assets of the nation's 248 money market mutual funds fell by almost $900 million in the week ended Wednesday, although they still total $226.4 billion.
Lee Idleman, director of research at the brokerage firm Dean Witter Reynolds Inc., said that, as rates decline further, investors are likely to continue to pull funds out of money market funds and invest them in stock.
Nevertheless, the market is in a frenzy, and "you can't carry frenzy forward indefinitely," warned Bache's Wachtel. Although Wachtel said the Dow average is likely to get to the magical 1,000 level, it is still not clear whether it will march toward it in a "straight line" or whether the market will "pull back to the 890-900 level for a little rest and rehabilitation."
The New York Stock Exchange's own index rose 1.59 points to 80.13. Standard & Poor's index of 400 industrials rose 2.86 points to 137.40, and S&P's 500-stock composite index was up 2.40 points at 122.68. On the American Stock Exchange, where 7.84 million shares changed hands, the index was up 3.19 points to 285.08. The NASDAQ composite index for the over-the-counter market closed at 182.05, up 2.46 points.
Last week an average of 86.9 million shares of stock were bought and sold each day on the New York Stock Exchange. During the first seven months of the year, the average daily volume was 52 million shares. The Dow average was up 41.66 points for the week.
Yesterday about three stocks on the New York exchange rose in price for every stock that declined in price.