New anxieties about the profits of high-technology companies upended the stock market Wednesday, dumping the Dow Jones industrial average 57.20 points to its lowest level in more than a month.
Already uneasy from other high-tech earnings reports, investors fled many issues in early afternoon on news that Motorola Corp. earnings were below Wall Street's expectations. The slide was hastened by an avalanche of program trading, which shaved 40 points from the Dow in half an hour.
The index ended the day at 1,879.14, its lowest level since Dec. 11, when it stood at 1,867.04. Broader market indexes were also down sharply, and volume was a moderate 181.66 million shares, compared to 153.55 million on Tuesday.
The strength of the entire economy has been called into question in the past week by the disappointing quarterly earnings posted by such important high-tech concerns as International Business Machines, Digital Equipment, Tandem Computers and, now, Motorola. Many of these reported higher profits, but analysts expected even better numbers, reasoning that the firms benefit from the evident strength of the domestic economy as well as exports sales that have been stimulated by a weak dollar.
But the lower-than-expected figures have led many to wonder how much bounce there is in the U.S. economy. "The high-tech sector had been the great hope for the market for weeks, with everybody hoping that they would lead a recovery," said Charles Eaton, a vice president at Nikko Securities in New York. "Now that's all coming apart."
Motorola Shares Fell $4.50
Still, some analysts contended that the high-tech concerns' results have been far too strong to merit such a selloff. "You can't put a finger on one fundamental reason why the stocks of these companies continue to take hits," said Edward Biederman, technical analyst at Hambrecht & Quist in San Francisco.
Jeffrey Canin, also with Hambrecht & Quist, said some high-tech companies' stocks have been hurt because larger competitors have not performed to expectations. When Tandem Computers reported disappointing earnings last week, investors also sold off the shares of Stratus Computer, a smaller competitor, he pointed out.
Motorola closed the day down 4 1/2 at 40 7/8. About 2.48 million shares traded hands, making it the fifth most heavily traded issue on the New York Stock Exchange.
The selloff began shortly after 1:15 p.m. EST, when the Motorola results were reported by Dow Jones News Service. The company said profits were up 62% to $102 million on revenue that had risen 14% to $1.85 billion.
Then began a wave of selling related to computer-directed index arbitrage, a trading strategy in which investors try to exploit tiny price differences between stock index futures and the underlying stocks.
The Dow was off more than 63 by 1:30 p.m., when it began recovering some of its losses. Some analysts speculated that program traders held back when the index reached that level, fearing that the Dow might reach a 75-point loss that would set in motion the New York Stock Exchange's program trading curbs.
The exchange last week asked member firms to refrain from using its high-speed computer trade-execution link if the Dow rose or fell 75 points. Chet Pado, technical analyst at Jefferies & Co. in Los Angeles, said some program traders may have held back fearing that a 75-point drop would seem to dramatize the risks of program trading.
"People in the business don't want more regulation, so maybe they feel it behooves them not to have that trigger point reached," he said.
Pado said investors have become so accustomed to seeing program trading begin as stock and futures prices diverge that some investors retreat from the market as soon as such spreads develop. Their withdrawal adds further downward pressure on prices, he said.
"As soon as they see those spreads, they say, 'Let's get out of the way,' " Pado said.
About 1,300 New York Stock Exchange stocks declined, while about 330 advanced.
The Standard & Poor's 500-stock index was down 6.69 to 242.63, while the New York Stock Exchange composite index was off 3.41 to 136.72. Hambrecht & Quist's technology stock index fell 11.9, or 4.83%, for the day, to 234.47.
Other hard-hit high-tech stocks included Texas Instruments, down 4 1/8 to 44 3/8; Advanced Micro Devices, off 5/8 to 8 7/8; National Semiconductor, which slid 1/2 to 10, and Intel, which fell 2 to 22 1/2.
After losing 6 Wednesday, IBM skidded 1 3/8 to 110 3/8. Other computer concerns also suffered, including Unisys, which dipped 1 5/8 to 30 3/4. The loss came although Unisys reported that its fourth-quarter profit had risen to $216.9 million from last year's loss of $188.5 million.
Computer maker Digital Equipment was down 4 to 115 1/2, while Cray Research was off 1 3/4 to 65 5/8, Hewlett-Packard lost 2 3/4 to 52 3/8 and Compaq Computer dropped 3 1/2 to 45 3/8. United Technologies was down 7/8 to 34 1/2, although the company reported net income of $172.8 million, versus last year's loss of $228 million.
A. H. Robins was down 1/2 to 24 7/8 as Sanofi, the French drug firm, and Rorer Group withdrew from bidding for company. Robins on Tuesday accepted a revised bid from American Home Products.
Walt Disney lost 3 to 57 1/8 after a Merrill Lynch analyst lowered his expectations for company earnings.
Texaco was up to 38. Carl C. Icahn, the company's largest shareholder, said he had met with Occidental Petroleum Chairman Armand Hammer about his interest in Texaco or the company's Canadian unit.
Bally Manufacturing Corp. was actively traded as some analysts speculated someone may be accumulating shares of the leisure and entertainment company. The stock rose to 14 7/8.
Staff writer Carla Lazzareschi, in Los Angeles, contributed to this story.