The Dow Jones industrial average surged to its highest level in three years, riding a tide of better-than-expected economic news and some Wall Street enthusiasm over the nomination of Ronald Reagan as the Republican presidential candidate.
The surge carried the Dow well over the 900 level, which in the past had acted as a barrier. And in a week of fairly heavy trading, The average closed at 923.98, up 32.85 points.
Behind the rise last week, noted Monte Gordon, director of research for the Billion- dollar Dreyfus Corporation, a mutual fund, was news of unexpectedly improved housing starts, as well as some second-quarter earnings reports that were less affected by the recession than many analysts had anticipated. Finally , Mr. Gordon said, something of a "Reagan rally" developed as investors expected that "Reagan's popularity might force Carter to focus on the economy more."
The government's report on Thursday that housing starts had soared 30.4 percent in June sent the market up 10.66 points that day. Mr. Gordon said this gain came despite there being about one year's supply of new unsold houses overhanging the market. "All I can guess from the starts," he said, "is that some of the building is being done on speculation."
Some analysts pointed to the housing- starts news as an indication that the economy was beginning to bottom out. President Carter, in Jacksonville, Fla., said the recovery was in response to "the rapid fall in recent months of interest rates." Robert Gough, director of national forecasting for Data Resources Inc., noted that activity in the housing market if often considered a leading indicator of overall economic activity.
In other economic news, the government reported that the factory operating rate continued to plunge, falling to 76 percent of capacity, the lowest level since the end of the recession in 1975. Personal income rose 0.4 percent, however, the best gain since March.
While some economists are debating whether the economy has bottomed out and is in fact getting set to rebound this fall, David Levine of Sanford C. Bernstein & Co., an investment research and management firm, is predicting that the economy will operate at a very low level for a prolonged period. Thus, he is telling his clients that interest rates will remain low "for several years." While Mr. Levine doesn't argue that the economy will rebound from its current depressed state, he maintains that the level at which it is operating is more important than the rate of change in gross national product. Also, he holds that the recession still hasn't bottomed out, which means it will be a while until inflation is the No. 1 problem.
Second-quarter earnings began piling in last week, and the carnage wasn't nearly as bad as some analysts had expected. Among those posting earnings drops were RCA, Boise Cascade, and the Continental Group. Most of the major banks posted large gains, however, ad did Merrill Lynch and Archer-Daniels- Midland.
The oil stocks were active and higher once more last week. Mobil Corporation was a big gainer after the company reported on its drilling activities off Canada. Also, Standard Oil of Indiana was active and higher after reporting a major gas discovery in the Overthrust Belt of southwestern Wyoming. Getty Oil was active after it announced that Kuwait had made a tender offer for 14 percent of the oil company's stock now held by the J. Paul Getty Foundation.