Dow Drops 12.66 to End Year at 1,895.95 : Tax-Related Selling Again Hurts Market

The stock market stumbled out of 1986 with a loss in pre-holiday trading Wednesday.

The Dow Jones average of 30 industrial stocks--which hit a record 1,955.57 on Dec. 2--closed at 1,895.95, down 12.66 points. That was the lowest close since Nov. 21, when it stood at 1,893.56.

Wednesday’s losers slightly outpaced gainers, with 813 issues down, 792 up and 469 unchanged on the New York Stock Exchange.

Big Board volume totaled 139.17 million shares, compared to 126.18 million shares Tuesday.

Analysts blamed Wednesday’s disappointing performance on tax-related selling and continued worries about the economy. “There was a lot of tax-selling, the little folks who waited until the last minute to take their capital gains,” said Alfred E. Goldman, an analyst at the A. G. Edwards & Sons Inc. securities firm in St. Louis.

Under new tax regulations that take effect today, capital gains will be taxed at higher rates than were effective in 1986.

Wednesday’s session started with prices slightly higher, but those gains evaporated by noon amid some computerized program selling kicked off when index futures prices fell below the prices of their underlying stocks, Goldman said.

Ralph J. Acampora, an analyst with Kidder, Peabody & Co., said the market was disturbed by a morning report that the nation’s November trade deficit had hit a record $19.22 billion. That number was much higher than expected and guaranteed a record deficit for the year.

He said the report added to underlying unease about the state of the economy--a negative factor that has been nagging the market all year but especially in recent months.

Meanwhile, the dollar continued to fall sharply on world currency markets, encouraging fears of resurgent inflation and concern that the Federal Reserve would not be lowering interest rates soon.

“The balance of payments gets worse, the budget deficit gets worse. The balloon gets bigger and bigger: It’s a balloon in search of a pin,” Acampora said.

Those worries have accelerated in recent days, contributing to the weakened condition of bonds and spilling over into the stock market as well, analysts said.

Bell South led the most-active Big Board issues at 57 3/4, down 3/8, while Niagara Mohawk Power was up 3/4 at 16 3/4, and Southern California Edison was down at 33 7/8.

IBM was down 7/8 at 120, Unisys was down at 80 and Zenith was up at 21 7/8. Dow Chemical was down 1 1/8 at 58 1/2, while Du Pont was off 1 3/8 at 84. Exxon lost 1 5/8, to 70 1/8; Atlantic Richfield was down 1 at 60, and Amoco was off 1 3/8 at 65.

American Express was down 7/8 at 56 5/8, Chemical New York was down 1 at 42 and Morgan Stanley was off 2 1/8 at 64 7/8. Goodyear was up 3/8 at 41 7/8.

Federated Stores rose 3/8 to 83, K mart rose 1/8 to 43 7/8 and J. C. Penney was unchanged at 72.

Bond prices were mostly lower in light trading. The Treasury’s key 30-year issue was down more than 1/2 point, or more than $5 per $1,000 face amount, with its yield rising to 7.48% from 7.45% late Monday.

Prices for corporate and municipal bonds were unchanged, according to Salomon Bros.

In the secondary market for Treasury bonds, prices of short-term governments were up about 1/16 point, prices of intermediate maturities ranged from unchanged to point lower and 20-year issues were down more than 1/2 point, according to quotations provided by Telerate Inc.

Yields on three-month Treasury bills were down 3 basis points to 5.66%. Six-month bills fell 5 basis points to 5.62% and one-year bills were down 9 basis points at 5.61%. A basis point is one-hundredth of a percentage point.

The federal funds rate, the interest on overnight loans between banks, ended the day at 6%, but it reached 20% at midday and had closed at 14% late Tuesday.