IBM Sets the Stage for Wave of Profit Taking; Dow Index Drops 13.91
The stock market fell broadly Monday, detouring from the path of steady advances that it has followed in early 1985 amid profit taking and a decline in the price of a key blue-chip issue, IBM.
Analysts said the decline in IBM set the tone for the market early in the session. Auto and financial stocks also fell, while some precious metals issues rose.
The Dow Jones average of 30 industrials, which rose 12.25 last week, fell 13.91 to 1,276.06. It was the biggest one-day decline in the average since it fell 14.80 last Nov. 28.
Declining issues led gainers five to three among those listed on the New York Stock Exchange, whose composite index fell 0.89 to 104.50.
Big Board volume was 104.00 million shares, compared to 116.46 million Friday.
Pullback Inevitable
Stock prices have been moving steadily higher in early 1985 with the broad-based measures of market performance generally making greater strides than the blue chips. Some analysts say that bodes well for the long-term outlook for stock prices.
But others say a pullback in prices was inevitable as traders cash in on the monthlong advance.
“Traders are taking profits, and there are some very big profits to be taken this year,” said Newton Zinder, who follows the market for E. F. Hutton & Co. He called the day’s performance one of the “periodic pauses and pullbacks” that are to be expected.
He said the market tone was set early in the day when reports circulated that analysts at two Wall Street brokerage houses had lowered their first-quarter earnings estimates for IBM. The stock’s price fell and wound up off 3 3/4 for the day at 133 1/2.
William Raftery, vice president at the investment firm Smith Barney, Harris Upham & Co., said he viewed the decline as “a normal round of profit taking” that was “exaggerated” by IBM’s decline.
He said the market pullback could last for several days or weeks. He added that “given the extent of the rise we have seen in the past two to six weeks, it is not anything that would be characterized as abnormal.”
He said his long-term market outlook was “still constructive” because there were some healthy gains Monday despite the fact that many well-known issues fell.
Unocal, for instance, rose 1 to 49 3/4 and Merck was up 1 1/8 at 97. Los Angeles-based Unocal has been the subject of takeover speculation, but the firm’s chief executive Monday denied a Business Week report that the company is for sale.
Eastman Kodak was down 3 1/2 at 69 3/4 despite reporting a sharp improvement in its fourth-quarter profit. Kodak Chairman Colby H. Chandler said in announcing the results that similar big gains will be more difficult to achieve in 1985.
Phillips Down
Among other actively traded issues, American Telephone & Telegraph was down 3/8 at 21 1/8, Sony Corp. was unchanged at 16 and General Motors fell 1 to 78 3/4.
Phillips Petroleum, which is resisting its second takeover offer in less than three months, was down 1/8 at 50.
Rockwell International was down 1/8 at 35 1/2. The company said it had signed an agreement with the Chinese government to make and market Goss presses in China.
U.S. Steel fell to 27 3/4. It said it had signed a letter of intent to sell its agri-chemicals unit to a management group.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 128.74 million shares.
Standard & Poor’s index of 400 industrials fell 1.95 to 201.85, and S&P;’s 500-stock composite index was down 1.68 at 180.51.
At the American Stock Exchange, the market-value index fell 1.52 to 229.53.
The NASDAQ composite index for the over-the-counter market closed at 286.43, down 0.92.
The Wilshire index of 5,000 equities closed at 1,865.081, down 14.442.
Large blocks of 10,000 or more shares traded on the NYSE totaled 1,956, compared to 2,370 on Friday.
Bond prices fell in light-to-moderate trading as investors awaited clues on the course of Federal Reserve Board policy.
The Fed moved aggressively to push down interest rates in the second half of 1984 when the economy appeared sluggish. But analysts said that, as a result of a resurgence in money supply growth, the Fed may be less eager to stimulate the economy.
Fed policy-makers are scheduled to meet today in Washington to review their strategy for 1985.
In the secondary market for Treasury bonds, short-term maturities fell 1/32 point, intermediate maturities dipped 1/8 point and long-term maturities fell 1/2 point, according to the investment firm of Salomon Bros. Inc.
