Market Falters as Dow Slips Back Below 1,400
The Dow Jones industrial average slipped off its perch above 1,400 on Thursday as the stock market turned in a mixed showing.
The widely followed average of 30 blue chips, which had climbed 6.77 on Wednesday to a record 1,403.44, dropped back 3.90 to 1,399.54.
Volume on the New York Stock Exchange slowed to 118.95 million shares from 129.48 million on Wednesday.
Brokers said some investors were selling blue-chip issues to cash in profits after the market’s recent upsurge. But they added that there was no sign of any abrupt change in investors’ hopes for lower interest rates and a healthy economy in 1986.
Wall Streeters responded warmly to new signals from the Federal Reserve that it was seeking to hold interest rates down in order to encourage economic growth and promote a further decline of the dollar in foreign exchange.
In a letter made public late Wednesday, Paul A. Volcker, the Fed’s chairman, said the central bank regarded the recent rapid growth of the money supply as “acceptable.”
Volcker Letter to House Panel
That wasn’t the first indication lately from the Fed that it didn’t plan to tighten credit. But some observers took Volcker’s letter to the chairman of a House subcommittee as significant because it came just after a meeting this week of the policy-setting Federal Open Market Committee.
A few individual issues sold off on earnings disappointments, with M-A-Com, down 3 1/2 at 13 in heavy trading, the hardest hit. The company reported lower profits from continuing operations for its latest fiscal quarter. It said it expected earnings for its current quarter to come in below comparable year-ago levels as well.
Mattel, which said its third-quarter operating earnings declined to 48 cents a share from 62 cents in the comparable period last year, fell 2 to 12 3/4.
Royal Dutch Petroleum lost 1 5/8 to 62 1/8. The company reported sharply lower earnings for the third quarter and warned that oil prices might be weak in the first quarter of 1986.
Among actively traded blue chips, International Business Machines was down 3/4 at 132 1/8, American Express fell 3/8 to 46 7/8 and American Telephone & Telegraph slipped to 20 1/2. However Sears, Roebuck, which posted a 2.4% sales increase for the four weeks ended Nov. 2, rose 1 to 35 3/4 on volume of more than 2 million shares.
In the daily tally on the Big Board, advancing issues slightly outnumbered declines.
Bond prices got off to a good start. They moved higher at the opening as dealers initially welcomed Volcker’s comment on the money supply. But prices lost ground as dealers decided that Volcker’s comments were not all that favorable.
The chairman said in the letter that the central bank “chose not to move aggressively to tighten (bank) reserve availability to constrain” the expansion in M1, the measure of cash in circulation and all other forms of money easily accessible for spending.
Some dealers were wary of the word aggressively and said it implied that the central bank has tightened credit conditions a little bit.
Late in the day, the market got a lift when the Fed reported the nation’s basic money supply fell an unexpected $2.2 billion in the week ended Oct. 28.
In the secondary market for Treasury securities, prices of short-term governments were unchanged to up 1/32, intermediate maturities rose between 3/32 point and 7/32, and long-term issues rose between 2/32 and 4/32 point, according to the investment firm of Salomon Bros. The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, inched up 0.03 to 107.57. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, rose 0.81 to 1,128.46.
In corporate trading, industrials and utilities were unchanged in light trading.
Among tax-exempt municipal bonds, general obligations and revenue bonds fell 3/8 point in light trading.
Yields on three-month Treasury bills rose 4 basis points to 7.30%. Six-month bills went up 3 points to 7.34%, while one-year bills were unchanged at 7.36%. A basis point is one-hundredth of a percentage point.
Yields on 30-year Treasury bonds stood at 10.18%, the same level as late Tuesday.
The federal funds rate, which is the interest fee on overnight loans among banks, declined to 8% from 8.125% late Wednesday.
