Dow Falls 34.73 in Broad Stock Retreat; Analysts Blame Jittery Investors
The stock market came under renewed pressure on Thursday, declining sharply in what analysts described as an aftershock from its early September selloff.
The Dow Jones average of 30 industrials, which had risen 40.64 points in the week’s first three sessions, dropped back 34.73 to 1,768.56. That marked the average’s biggest daily decline since it plunged a record 86.61 points two weeks before.
Volume on the New York Stock Exchange remained relatively light, however, at 134.29 million shares, against 134.57 million on Wednesday.
Analysts said traders regarded the market’s recent rally as suspect because it came on light volume and didn’t seem to signal any strong shift toward more positive sentiment.
In addition, they cited fears that weakness in prices of stock-index futures might prompt renewed computer program selling of stocks by professionals engaged in the strategy known as index arbitrage. Some of that program selling was in evidence Thursday, brokers said.
The general mood in the markets, by all accounts, remained cautious after the record-setting decline in stock prices early this month. The widespread view on Wall Street is that it will take a few weeks at least for investors’ confidence to recover from that jolt.
“When people are nervous, as they have been lately, the slightest sign of weakness can start a rush to the sidelines,” said Charles Jensen at MKI Securities.
Takeover Stocks Active
Among the blue chips, IBM fell 1 3/4 to 135 3/4, AT&T; 1/2 to 23, GE 1 1/2 to 72, Procter & Gamble 1 7/8 to 66 3/4 and RJR Nabisco 1 3/4 to 46 3/4.
Hewlett-Packard fell 3 7/8 to 39 5/8 as a brokerage firm downgraded its rating of the stock.
While the overall market languished, however, brisk activity continued in stocks involved in takeover news or rumors.
Lucky Stores gained 1 3/4 to 36 in active trading. Investor Asher B. Edelman offered to buy the company for $35 a share.
Anderson, Clayton rose 2 to 65 1/2 on rumors that the company, already the subject of a $62-a-share offer from Ralston Purina, might attract another bidder at a higher price. After the close, Quaker Oats said it had bought about 23% of Anderson, Clayton’s stock.
Holiday Corp. jumped 4 3/8 to 70 3/4. Donald Trump, the real estate investor who was recently reported to have taken a position in the stock, was rumored to be buying more.
Trans World Airlines climbed 2 to 28. Chairman Carl C. Icahn said this week that the company expects to show substantial profits in the third and fourth quarters.
Reebok International, which said it expects its earnings per share for 1986 to exceed Wall Street estimates, gained 3 to 26 in over-the-counter trading.
Large blocks of 10,000 or more shares traded on the NYSE totaled 2,511, compared to 2,812 on Wednesday.
In the overall tally on the Big Board, declining issues outnumbered advances by about three to one. The exchange’s composite index fell 2.29 to 133.77.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 164.68 million shares.
Bond Prices Slip
Standard & Poor’s index of 400 industrials lost 5.00 to 256.35, and S&P;’s 500-stock composite index was down 4.45 at 231.83.
The Wilshire index of 5,000 equities closed at 2,365.360, down 38.368.
The NASDAQ composite index for the over-the-counter market dropped 3.03 to 351.49. At the American Stock Exchange, the market-value index closed at 261.41, down 2.93.
While the bond market advanced at first, it pulled back to smaller gains before ending lower after the stock market closed.
The Treasury’s key 30-year bond lost about 3/8 point, or $3.75 for every $1,000 in face value, which raised its yield to 7.67% from 7.63% late Wednesday.
“The stock market took us down a lot today,” said Jay Goldinger of the Beverly Hills investment banking firm Cantor, Fitzgerald & Co.
Despite the weakness on Thursday, analysts say bond dealers seem to have discarded fears of renewed inflation stemming from an improved economy.
“You’re getting another mood,” said Ward McCarthy, senior money-market economist for Merrill Lynch Capital Markets. “The adverse psychology of recent weeks seems to be receding.”
Fears of inflation linked to a possible economic revival sent the bond market plunging earlier this month, with the prices of some long-term government issues falling as much as 6 points in two weeks. A drop in the bond market also was partly blamed for sparking record losses in the stock market.
Signs of a weak economy, with inflation remaining low, are generally good news for the credit markets because investors believe that it increases the chance that the Federal Reserve Board will attempt to stimulate business and consumer spending by cutting short-term interest rates. A drop in interest rates means higher bond prices.
The bond market has been improving over the past three days due partly to the recent release of less-than-favorable government reports on the economy, including a 2.6% drop in durable goods during August. A stronger dollar on foreign exchange markets also helped spark bond sales.
In the secondary market for Treasury securities, prices of short-term governments were off about 1/8 point and intermediate maturities fell by point, according to the Salomon Bros. investment firm. The 20-year issues dropped 5/8 point.
In corporate trading, industrials held steady while utilities rose point in light to moderate activity.
Among tax-exempt municipal bonds, general obligations were unchanged and revenue bonds were down point. Trading was light.
Yields on three-month Treasury bills were up 1 basis point, or a hundredth of a percentage point, at 5.23%. Six-month bills rose 3 basis points to 5.37%, and one-year bills rose 2 basis points to 5.46%.
The federal funds rate, the interest on overnight loans between banks, traded at 5.875%, up from 5.8125% late Wednesday.
