Dow Off 5.41 on Sell-Off of Blue Chips : Other Issues Retain Gains as Market Ends Best Week in 3 Months
The stock market closed out its best week in nearly three months with a mixed showing Friday.
Blue-chip issues ran into some selling, but the rest of the market generally held its ground in a moderately active session.
The Dow Jones average of 30 industrials dropped 5.41 to 1,218.09, reducing its gain for the week to 33.13 points.
Volume on the New York Stock Exchange came to 107.59 million shares, against 124.68 million Thursday.
After disappointing investors by falling steadily through the first three sessions of the new year, the market staged a dramatic reversal this week, posting its best gain since the Dow Jones industrials climbed 35.23 during the week of Oct. 15 to 19.
The rally got its start as interest rates dropped in the credit markets, resuming their decline in the second half of 1984.
Volcker’s Comments
In the past couple of days, interest rates have stopped falling. They moved up Friday in response to the Federal Reserve’s report late Thursday of a smaller-than-expected decline of $500 million in the basic measure of the money supply for the week ended Dec. 31.
But market analysts did not read much significance into the latest money supply data. They focused instead on optimistic comments Thursday by Paul A. Volcker, the Fed’s chairman, about the inflation outlook.
Volcker noted that the inflation rate today remains about the same as it was in the 1981-82 recession, even after two years of a brisk recovery.
The government reported Friday morning that the producer price index of finished goods rose just 0.1% in December.
Wall Streeters saw Volcker’s remarks as a possible signal of his willingness to continue easing the Fed’s credit policy.
American Telephone & Telegraph led the active list, down at 20 1/2 in trading that included several large blocks.
On Thursday, the stock reached its highest level in more than a year.
Other blue-chip losers included International Business Machines, down 1 at 122 3/4; Eastman Kodak, off 7/8 at 71 3/4; General Electric, down 3/4 at 58, and Merck, off 3/4 at 92 3/4.
Stone Container fell 1 1/2 to 27 3/8, continuing its slide since Great Northern Nekoosa announced a price cut for linerboard earlier in the week.
“This price action, which was not completely discounted by the market, will result in weak 1985 first-quarter earnings for most major linerboard producers,” said Gary Palmero, paper industry analyst at Oppenheimer & Co.
Gainers outnumbered losers by about five to four on the Big Board, and the exchange’s composite index slipped 0.15 to 96.98.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 128.80 million shares.
Standard & Poor’s index of 400 industrials fell 0.45 to 187.18, and S&P;’s 500-stock composite index was down 0.40 at 167.91.
The NASDAQ composite index for the over-the-counter market rose 1.51 to 252.16.
At the American Stock Exchange, the market-value index closed at 205.74, up 0.66.
The Wilshire index of 5,000 equities closed at 1,715.753, down 0.490.
Large blocks of 10,000 or more shares traded on the NYSE totaled 2,230, compared to 2,704 on Thursday.
Bond Prices Fall
Bond prices fell in moderate trading, sending yields on 30-year Treasury bonds to 11.63% from 11.55% late Thursday.
The declines hit long-term issues hardest and came despite the further encouraging developments on the inflation front.
Analysts said traders were wary about prospects for further declines in interest rates and were awaiting the scheduled release next week of a series of government economic reports.
Renewed signs of strength would reduce hopes for further moves by the Fed to stimulate growth by accommodating additional declines in interest rates, the analysts said.
The federal funds rate, the interest on overnight loans between banks, traded at 8%, down from 8.475% late Thursday.
In the secondary market for Treasury bonds, prices of short-term governments edged down 1/32 point, intermediate maturities fell 1/8 point to 3/8 point and long-term issues were off 5/8 point, according to the investment firm of Salomon Bros. Inc.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
In corporate trading, industrials and utilities fell 3/8 point.
Among tax-exempt municipal bonds, general obligations and revenue bonds were down 3/4 point.
Yields on three-month Treasury bills rose 2 basis points to 7.77%. Six-month bills rose 10 basis points to 8.05%, and one-year bills were up 5 basis points at 8.41%. A basis point is one-hundredth of a percentage point.
