Another generally positive set of quarterly earnings reports and hopes for further Federal Reserve interest-rate cuts fueled the buying on Wall Street.
The Dow Jones industrial average gained 49.69 points, or 0.6 percent, to 8,466.45.
Last week, the barometer soared 517.24 points in its biggest weekly point gain ever, stoked by an unexpected quarter-point Federal Reserve interest-rate cut.
"We've seen the bottom and I don't think we're going to go back down to the Sept. 1. lows," said David Ryan, president of Ryan Capital Management. "The market looks good. We're still going to get our choppiness and there could be some scary days here and there. But I think, overall, now is the time to get back to accumulating good stocks."
"The market's worst is pretty much over," said Tim Hayes, equity strategist at Ned Davis Research. "Looking out to early next year, it looks like we'll be heading higher."
The big picture is that of a market betting on a soft landing for the U.S. economy: one that slows, yet avoids recession. At the crux of this scenario is the expectation of further Fed rate cuts.
"With European central banks also cutting rates and a classic recession involving a profit downturn very unlikely in the U.S., the Fed's easing could well have a quicker and more powerful impact on the economy and the financial markets than has been the case in the past," said Edward M. Kerschner, chief investment strategist and chairman of the investment policy committee at PaineWebber Inc., in a research report.
Merger activity, dormant during the July-August market selloff, perked up Monday. Yet most takeover plays lost ground.
Small-company shares, which often begin a period of market leadership following a bear market, rushed forward, outperforming the rest of the market for the fifth day in the last seven.
"I think the Fed's discount-rate cut has helped smallestocks enormously," said Claudia Mott, director of small-cap research at Prudential Securities. "That's probably giving people a sense that economic growth domestically is going to improve, and certainly not deteriorate any farther.
"Smaller companies are going to have a lot greater leverage to what happens domestically because they don't really have as much exposure outside the U.S."
Mott doesn't expect investors who want to dump losers out of their portfolios to have much of an impact on the sector.
"The tax-loss selling pressure is probably pretty much behind us at this stage of the game," she said. "There have been a lot of thumbs that have been lifted off small stocks."
Technology, transportation and retail shares were among the day's big winners. re the day's other big winners amid a steep spill in crude oil prices.
Hayes backs his bullishness up with some hard facts. Following an extended period of higher or unchanged interest rates, he notes that two consecutive Federal Reserve interest-rate cuts have usually led to higher stock prices. After the second rate cut, the market is up an average of 12 percent in the ensuing six months, and an average of 26 percent higher a year later. This is the "two tumbles and a jump" buy signal.
In Monday's market indicators:
- The Standard & Poor's 500 Index advanced 0.6 percent.
- New York Stock Exchange winners outdistanced losers by nearly a 2-to-1 majority. New 52-week highs totaled 43, while new 52-week lows came to 36.
- On the Big Board floor, volume dwindled 29 percent to 720 million shares.
- The Nasdaq Composite advanced 1.7 percent. Advancing issues led decliners by better than 5 to 3 in the Nasdaq Stock Market, with 32 new highs and 153 new lows. Volume totaled 831 million shares.
- The Russell 2000 Index of small-capitalization stocks gained 2.8 percent. It closed a whisker from its session high, a show of strength.
- The 30-year Treasury declined 2/32, to yield 4.987 percent.
Among the companies in the news:
- Healthcare products distributor McKesson (MCK) will acquire HBO & Co. (HBOC) in a $14.5 billion stock swap. HBO, a provider of information-processing systems to hospitals, saw its stock slide 4 3/16 to 25 3/8. McKesson shares plunged 12 11/16 to 76.
- Rival supermarket operators Kroger (KR) and Fred Meyer (FMY) will combine in a $13 billion deal, including debt assumption. Stock of the former fell 3 5/16 to 45 7/16, while shares of the latter declined 4 5/16 to 44 11/16.
- First Brands (FBR) zoomed 12 5/16, or 52 percent, to 35 15/16. Clorox (CLX) will purchase the consumer products manufacturer for about $2 billion. First Brands shareholders will receive $39 in Clorox stock for each First Brands share they hold. Clorox dropped a point to 98 3/4.
- Greyhound (BUS) drove ahead 13/16, or 17 percent, to 5 11/16. It agreed to tie the knot with public transpotation concern Laidlaw (LDW) in a $680 million transaction, including debt assumption. Laidlaw dipped 7/16 to 9 1/4.
- Warner-Lambert (WLA) checked in with third-quarter results of 35 cents a share, a penny ahead of what most analysts on Wall Street had expected. It earned 24 cents in the same quarter of 1997. Warner said per-share net of $1.48 a share for all of 1998 is "now achievable." The shares sank 1 3/16 to 72 3/16.
- Continental Airlines (CAIB) bettered Wall Street forecasts by a penny with its third-quarter operating profits of $1.94 a share. In the third quarter of 1997, earnings came to $1.48. The company's load factor, a measure of demand for its seats, rose to 76.1 percent from 73.7 percent. The stock lifted 2 1/8 to 41 1/4.
- GTE (GTE) squeaked past most estimates by a penny with its third-quarter earnings of 85 cents a share, up from 79 cents in the year-ago period. It sees 1999 sales growth of 10 percent to 12 percent. The shares gained 1/4 to 56 3/4.
- International Business Machines climbed 2 7/8 to 138 13/16. It pulls the wraps off its third-quarter earnings report Tuesday. Most analysts are looking for $1.53 a share.
- Bankers Trust skipped ahead 3 3/8 to 54 3/4. Friday, unconfirmed speculation made the rounds that the bank was forced to go to the Fed to borrow funds. The Fed declined comment.
- RealNetworks (RNWK) rose 2 1/2 to 37 3/8 after penning a deal with Netscape Communications (NSCP) to bundle its audio and video software into Netscape's Communicator 4.5 Internet browser software. Netscape shares tacked on 3 1/2 to 23 3/4.
- Leading technology issues rose higher. Lucent Technologies improved 3 5/8 to 76 1/8, Computer Associates 1 15/16 to 37 7/16, EMC 2 3/8 to 57 3/4, Intel 1 1/4 to 85, and MCI WorldCom 1 13/16 to 50 15/16.
- Internet-related names also rose. SportsLine USA (SPLN) rallied 1 5/8, or 18 percent, to 10 5/8 on speculation it might ink a distribution deal with a major Internet company. Inktomi was up 6 1/8 to 83 3/8, Amazon.com 6 5/16 to 105 3/4, Infoseek 1 15/16 to 22 1/2, and America Online 3 7/16 to 105 7/16.