Dow Rockets Past 7,700 Level Signs Of Tame Inflation Fuel Expectations For Rising Profits

U.S. stocks rallied to records for a fifth day, sending the Dow Jones Industrial Average hurtling past 7,600 and 7,700.

Signs of tame inflation fueled expectations for low interest rates and rising profits.

“It’s almost like the market’s levitating,” said Jon Olesky, head of block trading at Morgan Stanley, Dean Witter, Discover & Co.

“I am dumbfounded,” said Hugh Johnson, market strategist at First Albany Corp. “People are saying it’s overvalued, but none are willing to sell stocks to defend themselves. There is a reluctance to sell, a reluctance to let cash build up. There’s nothing more painful in a bull market than to be underinvested.”

Stocks got a lift from bonds, which rallied after a report showed retail sales unexpectedly fell in May, reducing the likelihood that the Federal Reserve will raise borrowing rates next month.

The Dow industrials surged 135.64 to 7,711.47, just two days after closing above 7,500 and less than a week after piercing 7,400. The Standard & Poor’s 500 Index rose 13.87 to 883.44, its 25th record this year. The Nasdaq Composite Index rose 3.47 to 1,411.32.

U.S. stocks joined markets in Germany, Britain, Belgium, the Netherlands, Sweden, Canada, Brazil and Mexico, which all reached all-time highs.

The lowest U.S. bond yields since late February helped stocks here and abroad rally. The yield on the benchmark 30-year Treasury bond dropped to 6.76 percent from 6.83 percent. That means companies won’t have to spend more money to finance their businesses.

“There’s an increased comfort level that the economy will enjoy the nirvana-like state it’s been in for the past year - low inflation with good growth,” said Peter Keane, chief investment officer of Sovereign Advisers, which manages $330 million. “Earnings for the second quarter and the balance of the year look pretty darn good.”

The day’s most active stock was Polo Ralph Lauren Corp., which surged $5.50 to $31.50 in trading of 20 million shares. The upscale clothes maker sold shares to the public for the first time, racking up $767 million in proceeds. Polo’s brand name and lucrative licensing agreements should ensure future profits, investors said.

Overall, trading volume on the New York Stock Exchange surged. Some 593 million shares changed hands on the Big Board, above the three-month average of 483 million, while 1,804 stocks rose and 782 fell.

Thursday’s rally extended a bull market that began in October 1990. The Dow industrials have climbed 226 percent in 2,436 days since late 1990 - the longest rally without a 10 percent decline since 1914, according to Birinyi Associates.

Financial markets gained after the Commerce Department said U.S. retail sales fell 0.1 percent in May. Analysts forecast a 0.4 percent rise. While the drop suggested a slowdown in economic activity, investors were heartened by the prospect consumer spending won’t ramp up and cause inflation to accelerate.

The Dow industrials and S&P 500 Index have set records every day since Friday. The Dow’s 5.56 percent gain over those five sessions was its best since the five ended May 5, a day that also saw the average pass two 100-point marks.

The Dow has now pulled ahead 1,319.78 points from the low it reached April 11, and is up 20 percent for the year.

Some of the stocks that moved substantially or traded heavily Thursday:

NYSE

Polo Ralph Lauren Corp., 31-1/2, up from an original price of 26.

The fashion retailer had a strong debut on Wall Street after pricing $767 million worth of shares late Wednesday at 26.

Philip Morris, rose 2 to 44-5/8.

RJR Nabisco, rose 1-1/2 to 34-1/8.

Loews Corp., rose 2-1/2 to 101.

Culbro, rose 1-3/4 to 137-1/8.

Tobacco negotiators said they had made progress on industry liability talks, but two major sticking points remain.

Compaq, fell 3 to 96-7/8.

In a bid to combat a drop to third place in the Japanese market share, the computer maker said it would institute dealer incentives and cut server prices in Japan to between 3 percent and 5 percent below its major competitors, NEC and Fujitsu Ltd.

Xerox Corp., up 2-3/4 at 72-1/2.

Richard Thoman is leaving a top post at IBM to take the No. 2 slot at Xerox, as the company’s president and chief operating officer.

NASDAQ

AccelGraphics, fell 3-13/16 to 5-1/4.

The company said its second-quarter profits should fall short of Wall Street expectations of 12 cents per share, citing soft foreign markets for its 3-D computer graphics software.

Giddings & Lewis Inc., rose 1-47/64 to 20-47/64.

German industrial group Thyssen AG said it would offer Giddings & Lewis shareholders $21 per share, in a bid to gain a majority share in the U.S. machine tool and industrial automation equipment company.