Dow Drops 7.03 After Rally Fizzles : Report on Jobless Rate Spurs, Then Dampens Stock Prices
The stock market closed with a modest loss Friday after turning back abruptly from a strong early advance.
The Dow Jones average of 30 industrials, up about 18 points in early trading, closed at 1,774.18, down 7.03. That trimmed the average’s gain for the week to 4.49 points.
Volume on the New York Stock Exchange came to 128.09 million shares, against 128.05 million on Thursday.
The focal point for the market’s wide swings was the Labor Department’s report that the civilian unemployment rate rose to 7% in September from 6.8% the month before. The data also showed a smaller-than-expected increase in non-farm payroll employment.
At first, analysts said traders took that news as a signal that other economic statistics for September were likely to remain uninspiring, increasing the chances that the Federal Reserve might deem it advisable to relax its credit policy further.
But analysts said stock traders’ initial positive response gave way to worries about the implications of sluggish economic activity for corporate profits.
Earnings Reports
Many companies will be posting their results for the July-September period in the next few weeks, and there is concern on Wall Street that the numbers will contain another round of disappointments.
Weakness showed up in stock index futures, encouraging professional traders engaged in computer strategies to buy the futures and sell individual stocks.
Among the blue chips, International Business Machines fell 2 1/8 to 130 7/8, General Electric 5/8 to 71 1/8, Du Pont 1 to 79 and Minnesota Mining & Manufacturing 1 to 100 1/2.
USX led the NYSE active list, up 1 1/2 at 26 1/8 on turnover of more than 8.5 million shares. The company has been the subject of intense takeover speculation lately, and there was talk Friday that financier Carl C. Icahn might be increasing his position in the stock.
Some bank issues managed to post gains on the drop in interest rates. J. P. Morgan picked up 1 3/4 to 83 5/8, Manufacturers Hanover 5/8 to 45 and Chase Manhattan 1/8 to 36 5/8. But Citicorp lost 1/8 to 49.
Zayre fell 1 1/8 to 21 7/8 on top of a 1 3/8-point drop Thursday, when the company said it expected earnings for the quarter ending Oct. 25 to fall short of comparable year-ago levels.
In the overall tally on the Big Board, declining issues held a narrow edge on advances.
Bond Prices Gain
Bond prices gained solidly Friday after the government released the August unemployment report, which led to revived hopes of new cuts in interest rates.
Falling interest rates send bond prices higher.
The key 30-year Treasury bond, which fell slightly Thursday, rose by more than $10 for each $1,000 in face amount, and its yield fell to 7.53% from 7.63% Thursday.
Overall, the unemployment report led to the conclusion that “there no longer seems to be any pickup in the industrial sector,” said Gordon B. Pye, senior vice president at Irving Trust Co.
“That means to the bond and money markets that perhaps there will be further easing in monetary policy. They like to see things like that,” he said.
Geoffrey L. Kurinsky, an economist for the Boston-based fixed-income analysis firm Technical Data Corp., agreed that bond prices rose in anticipation of another cut in the discount rate by the Federal Reserve Board.
The discount rate is the interest the Fed charges on loans to financial institutions. The Fed has cut the rate four times this year, most recently to 5.5% on Aug. 20.
“We now think the Fed could cut the discount rate in just a few weeks, whereas before today, we thought it was five or six months down the road,” Kurinsky said.
In the secondary market for Treasury bonds, prices of short-term governments rose 7/16 point, intermediate maturities rose 21/32 point and long-term issues were up 1 9/32 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.
In corporate trading, industrials were up 1/2 point and utilities rose 3/8 point in active dealings.
Among tax-exempt municipal bonds, general obligations rose 1/2 point in light trading and revenue bonds were up 3/4 point in heavy trading.
