Profit Taking Saps Market’s Big Gains
Wall Street gave up some of Thursday’s big gains in a bout of profit taking Friday, as investors reacted badly to reports that a final agreement to cut the federal budget was still days away.
The Dow Jones average of 30 industrials dropped 25.20 to 1,935.01, finishing the week with a net loss of 24.04 points. The average jumped 61.01 points in Thursday’s session.
“In this market, where everything seems hinged on the budget talks, people think it is better to take profits when there is uncertainty because you can always buy them back--but you can’t always sell them,” a trader said.
White House and congressional leaders, who are seeking to cut about $30 billion from the budget deficit, adjourned the talks until next week. Participants said the sides were coming closer to an agreement and House Republican Leader Thomas Foley predicted that a final accord would be struck next week.
Declining issues outnumbered advances by about 7 to 5 on the New York Stock Exchange, with 672 up, 924 down and 381 unchanged.
Wrong Time to Cut Budget
Big Board volume totaled 174.92 million shares, against 206.28 million in the previous session.
A huge overnight rise in Japanese share prices failed to cheer the New York or London markets, where profit takers outnumbered buyers.
Martin Zweig, a stock strategist and editor of the Zweig Forecast, said that he is optimistic about the market’s outlook for the next three months. But, he added, a cut in the budget deficit would reduce the flow of government funds into the economy and slow it down at a vulnerable moment.
“This could very well be the wrong time to cut the budget and in the long term, the market may pay,” Zweig said.
The market did have some favorable news on inflation going for it, in the form of the Labor Department’s report that the producer price index of finished goods dropped 0.2% last month. Separate government figures showed a smaller-than-expected 0.1% decline in retail sales for October.
That news came atop Thursday’s report that the nation’s trade deficit narrowed in September.
Analysts did say, however, that many traders were leery of chasing after the market’s recent rally, suspecting that more time might be needed for stocks to recover from the shock of last month’s crash.
One presumed obstacle to any sustained recovery in the market is an unknown amount of stock held by investors through the crash and now earmarked for sale when and if conditions improve.
Among Friday’s volume leaders, Ford Motor rose 7/8 to 75 3/8 and Eastman Kodak gained 1/8 to 49 3/8, but American Telephone & Telegraph slipped 1/2 to 29 3/8 and International Business Machines was down 5/8 at 121 5/8.
Gordon Jewelry chalked up the day’s best percentage gain among NYSE issues, up 2 1/8 at 13 1/8. The company said it plans to make a tender offer next week for 2 million of its shares at $15 apiece.
Tokyo Stocks Higher
Squibb dropped 5 1/2 to 73 and Merck fell 4 5/8 to 175 3/8. Analysts said Merck apparently is about to get regulatory approval to market a drug that would compete with Squibb’s anti-hypertension drug Capoten.
The Wilshire index of 5,000 stocks fell 20.91 or 0.87%, in value.
The NYSE’s composite index of all its listed common stocks dropped 1.28 to 137.60.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 195.47 million shares.
Standard & Poor’s index of 400 industrials fell 4.55 to 281.12, and S&P;’s 500-stock composite index was down 4.77 at 245.64.
The NASDAQ composite index for the over-the-counter market dropped 1.03 to 322.97. At the American Stock Exchange, the market-value index closed at 251.44, down 0.11.
In foreign trading, Tokyo stocks jumped to their third-largest point gain ever Friday, but a rally in Europe faltered on persistent doubts about prospects for cuts in the U.S. budget deficit.
In Tokyo the 225-share Nikkei index climbed 901.75 points, or 4.2% to 22,448.25, ending a volatile week just about where it began.
London’s main blue chip barometer, the Financial Times Stock Exchange 100-share index, fell 1.4% on the day to 1,678.3.
