Rally Bogs Down as Blue Chips Yield to Profit Taking
The stock market settled for a mixed showing Friday, bogging down after its dramatic advance so far in 1987.
Some smaller secondary issues kept moving ahead. But many of the blue chips yielded to profit taking after the market’s ascent to new highs on Thursday.
The Dow Jones average of 30 industrials dropped 14.62 to 2,186.87, reducing its gain for the week to 28.83 points.
Volume on the New York Stock Exchange tailed off to 184.1 million shares from 256.66 million the day before.
Analysts said some traders were taking profits and buyers were shying away a little, with the Dow Jones industrial average having risen more than 305 points from the start of January through Thursday’s close.
However, they also said evidence continued to accumulate supporting hopes for a strengthening economy.
Monthly Labor Department statistics issued Friday morning showed an increase of 448,000 in non-farm payroll employment last month.
Bonds a Factor
Wall Street investors were also encouraged by the steady performance of the bond market this week as it absorbed offerings of $29 billion in Treasury bonds and notes without the rise in interest rates that some observers had feared would be necessary.
“Stable bonds in the face of growing bullishness toward the economy is the best of all possible worlds for equities, helping to explain the surge in the stock market in 1987,” said Phil Roth at E. F. Hutton & Co. in the firm’s daily market commentary.
“Nevertheless, we believe investors should not assume interest rates can go down much. Bonds are up against big resistance.”
Indeed, interest rates turned upward Friday in the markets for Treasury securities.
Among actively traded blue chips, General Motors dropped 2 5/8 to 76 1/8, Ford Motor fell 2 to 77, International Business Machines dropped 1 1/8 to 135 3/4 and American Telephone & Telegraph fell 1/8 to 23 7/8.
Carter Hawley Hale rose 2 5/8 to 55 on the basis of a “buy” recommendation by retail analyst Robert Raiff of C. J. Lawrence, who said he believes that the company’s restructuring is about equal in value to the defunct $60-a-share bid by the Limited and Edward J. DeBartolo Corp.
Raiff also told investors to use Dayton Hudson, another retailer, as a “source of funds,” a polite way of recommending sale. The shares fell 1 to 41. Raiff cited continuing problems with Mervyn’s, a unit in Hayward, Calif., and a belief that the Target division may have trouble integrating the Gemco outlets it bought from Lucky Stores.
Some savings and loan issues, by contrast, gained ground on the heels of the successful Treasury auctions. Great Western Financial rose 1 1/2 to 50, Great America First Savings gained 2 to 22, Home Federal Savings & Loan rose 1 3/4 to 29 3/4 and Coast Savings & Loan of Los Angeles was up 1 1/8 to 15 3/4.
Cyclops jumped 5 3/8 to 85 1/8. The company, which is the subject of an $80-a-share offer by a group led by Audio-Video Affiliates Inc., has said it has received overtures from another, unnamed suitor.
Advancing issues slightly outnumbered declines in the daily tally on the NYSE.
Bond Prices Decline
In the credit markets, government bond prices declined in what market analysts called profit taking on strong gains from the previous session and signs of a healthier economy.
Short-term interest rates surged, while corporate and municipal issues were mixed in light to moderate trading.
The key 30-year Treasury bond was off about 1/2 point, or $5 per $1,000 face amount, after rising as much as 1 1/8 points Thursday. Its yield rose to 7.46% from Thursday’s 7.42%.
In the secondary market for Treasury bonds, prices of short-term governments were about 5/16 point lower, intermediate maturities fell in the range of 3/16 to point and 20-year issues were down 7/16 point, according to the investment firm of Salomon Bros. Inc.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
Yields on three-month Treasury bills rose eight basis points to 5.66%. Six-month bills were up seven basis points at 5.66% and one-year bills were seven basis points higher to 5.61%. A basis point is one-hundredth of a percentage point.
In the corporate bond market, industrials were unchanged and utilities were down 1/8 point in light trading, Salomon Bros. said.
Among tax-exempt municipal issues, general obligation bonds were up point in moderate trading and revenue bonds were unchanged in light dealings.
The federal funds rate, the interest on overnight loans between banks, traded at 6.125%, up from 5.875% Thursday.
