Drop in IBM Triggers Late Market Retreat; Dow Index Falls 7.50
A sharp decline in one of Wall Street’s leadership issues, IBM, led the stock market to a broad loss late Wednesday with prices closing at their lows of the session.
But the size of the overall market’s decline was relatively moderate, and gains in oil stocks helped offset a widespread slump in technology issues sparked by IBM’s setback.
The Dow Jones average of 30 industrials dropped 7.50 to 1,306.34, with International Business Machines accounting for much of the loss by tumbling 5 to 120 3/4 as the most-active issue on the New York Stock Exchange.
Transportation stocks also fell over a wide front, and the Dow Jones average of 20 transportation issues skidded 9.12 to 642.21.
Declines overall led advances three to two on the NYSE, whose composite index dropped 0.72 to 108.87.
Big Board volume totaled 97.70 million shares, against 102.06 million Tuesday.
For much of the day, the market extended its lackluster performance of recent sessions, with prices moving within narrow trading ranges.
But two hours before the closing bell, IBM President John F. Akers told securities analysts that it was “unlikely” that IBM would achieve the “solid growth” in profit and revenue in 1985 that it had forecast earlier this year.
Akers’ comments immediately sent IBM’s stock lower and “put a big damper on the market overall,” said Jerry Simmons, first vice president of Smith Barney, Harris Upham & Co.
IBM’s projections added to an already poor outlook for the computer and semiconductor industries, which are suffering from weakening demand in large part because of the sluggish economy.
In the technology sector, Burroughs fell 2 1/2 to 59 3/8, Digital Equipment dropped 2 3/8 to 93 1/2 and Texas Instruments lost 1 5/8 to 93.
Control Data plummeted 3 to 27 3/4 in heavy trading. The computer maker said it ended talks to sell its financial-services unit, Commercial Credit.
Before IBM’s forecast was announced, the market had again showed a lack of direction amid investors’ uncertainty as to the course of the economy and interest rates.
Wall Street is divided over whether the Federal Reserve considers the economy so weak that it will decide to aggressively drive interest rates lower in order to stimulate business expansion.
Investors are hoping to get a clearer picture of the economy in the next two days, when the government reports on May retail sales and industrial production.
Elsewhere on the NYSE’s active list, RCA climbed 7/8 to 46 after an 888,200-share block traded at 45 5/8. Colgate-Palmolive rose 1 to 26 3/4 and Warner Communications gained 3/4 to 29 3/4.
In the oil group, Exxon rose 1/2 to 52 3/8, Chevron advanced 1/2 to 36 and Mobil edged up 1/8 to 30 3/8.
Kaneb Services fell 3/8 to 8 3/8; a 1.2-million-share block crossed at 8.
Niagara Mohawk Power rose 1/8 to 19 5/8 after a 1.37-million-share block traded at 19 3/8.
Bond prices fell as much as $10 for every $1,000 in face value amid continued uncertainty about the strength of the economy.
In the secondary market for Treasury bonds, prices of short-term governments fell 1/8 point, intermediate maturities were off between point and 1/2 point and long-term issues were down nearly a full point, according to the investment firm of Salomon Bros.
In corporate trading, industrials fell 3/4 point and utilities were off 7/8 point. Among tax-exempt municipal bonds, general obligations were unchanged while revenue bonds fell 5/8 point.
The federal funds rate, the interest on overnight loans between banks, traded at 7.313%, down from 7.375% late Tuesday.