Dow Drops 7 in Mixed Market; Trading Heavy : Concern Over Earnings Prospects Chills Rally
The stock market was mixed Thursday, unable to make much headway in the face of earnings worries involving some big-name blue chips.
The Dow Jones average of 30 industrials, up more than 10 points at midday, closed with a 7.03 loss at 1,796.82.
Volume on the New York Stock Exchange reached 153.39 million shares, up from 141.70 million Wednesday and the heaviest total since a 153.86-million-share day on Sept. 19.
Analysts said the market has been helped in recent sessions by talk that the long decline of interest rates has further to go.
They also noted that traders have been encouraged by strength in the transportation stocks, which serve as a traditional barometer of the pace of economic activity.
However, brokers also noted a good deal of concern over prospects for third-quarter earnings reports to be issued by many companies in the next couple of weeks.
Shares of both International Business Machines and General Motors retreated amid worries about their prospective quarterly results. In fact, the Dow Jones industrial average would have finished about unchanged had it not been for the losses recorded by those two stocks.
IBM, which dropped 6 points Tuesday and Wednesday, lost another 5 1/2 to 122, hitting a 52-week low. General Motors fell 1 3/8 to 66 5/8.
Auto Issues Slump
Other auto issues weakened along with GM. Chrysler dropped 1/2 to 37 1/8 and Ford Motor was down 1 7/8 at 54 1/8, even though Ford raised its quarterly dividend to 65 cents a share from 55 cents.
The airline group ran into profit-taking after its recent advance. UAL fell 1 1/8 to 57 and ranked as the day’s most-active issue on turnover of more than 6.2 million shares; AMR dropped 1/2 to 59, and Trans World Airlines lost 5/8 to 25 3/4.
An exception was Delta Air Lines, which rose 1/8 to 47 1/2.
Among the day’s prominent gainers was E. F. Hutton Group, up 2 1/2 at 45. The company has been the subject of recurring takeover speculation. Elsewhere among securities-industry issues, Bear Stearns added 7/8 to 17 7/8, and Merrill Lynch was up 3/8 at 37 3/8.
Japanese stocks also turned in a strong showing. Hitachi rose 2 5/8 to 73 1/8, Kyocera 2 1/2 to 50 and Honda Motor 2 1/2 to 85.
In the overall tally on the Big Board, advancing issues held a narrow edge on declines. The exchange’s composite index of all its listed common stocks slipped 0.39 to 135.90.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 181.52 million shares.
More Block Trades
Large blocks of 10,000 or more shares traded on the NYSE totaled 3,004, compared to 2,987.
Standard & Poor’s index of 400 industrials lost 1.06 to 261.00, and S&P;’s 500-stock composite index was down 0.83 at 235.85.
The Wilshire index of 5,000 equities closed at 2,398.725, down 5.675.
The NASDAQ composite index for the over-the-counter market rose 0.16 to 353.06. At the American Stock Exchange, the market-value index closed at 264.04, up 0.04.
In the credit markets, bond prices were little changed in light trading as many investors remained on the sidelines.
“It was another wasted day in bondland--still a mixture of opinions canceling each other out,” said William V. Sullivan Jr., an analyst at the Dean Witter Reynolds securities firm.
The market has been characterized by slow, if somewhat edgy trading all week, as investors remained divided over prospects for interest rates and the economy in general, analysts said.
In the secondary market for Treasury bonds, the bellwether 30-year issue was unchanged, its yield remaining at late Wednesday’s level of 7.62%.
“There’s an underlying bullishness, but a lot of people are confused, so they’re staying out of the market,” said Geoffrey L. Kurinsky, an economist for Technical Data Corp., a fixed-income analysis firm in Boston.
Opinion Divided
Sullivan said the opinion is divided into two factions--those who perceive the economic fundamentals as supporting higher interest rates and lower bond yields, and others who draw the opposite conclusion.
Traders in the first camp, he said, might point to firmness in energy and precious metals prices, along with continuing strength in monetary aggregates--strong monetary growth--as all indicating the likelihood of higher inflation.
This would encourage the Federal Reserve Board to tighten monetary policy, letting interest rates rise, which would send bond prices lower.
The other camp, Sullivan said, says continuing evidence of economic sluggishness is pressuring on the Fed to cut the discount rate--the interest rate it charges financial institutions--for the fifth time this year. The Fed last cut that rate to 5.5% on Aug. 20.
A new round of interest rate cuts would mean higher prices for bonds.
An example of such evidence, Sullivan said, would be last Friday’s unemployment report for September, which showed higher unemployment and downward revisions of August employment figures.
“The market is caught in the tug and pull of these economic opinions, and as a result, bonds are trading in an extremely narrow range,” Sullivan said.
Treasury Issues Rise
In the secondary market for Treasury bonds, prices of short-term governments rose less than 1/32 point, intermediate maturities rose 3/32 point and long-term issues were up 2/32 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 and utilities were unchanged in light trading.
Among tax-exempt municipal bonds, general obligations rose 3/8 point and revenue bonds were up point. Trading was light to moderate.
Yields on three-month Treasury bills were unchanged at 5.05%. Six-month bills fell 1 basis point to 5.05% and one-year bills were off 1 basis point at 5.26%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 5.75%, up from 5.50% late Wednesday.
