Stocks Mixed; Dow Jones Index Drops Back 13
The stock market bogged down Monday after last week’s rally, still taking its cue from swings in the credit markets.
Market measures dominated by blue chips posted modest losses, while those more attuned to the behavior of smaller stocks gained ground.
The Dow Jones index of 30 industrials, up 54.71 last week, dropped back 13.59 to 1,944.63.
But gainers outnumbered losers by about 8 to 7 in the overall tally of New York Stock Exchange-listed issues.
Volume on the Big Board came to 210.66 million shares, against 211.88 million on Friday.
Prices of long-term government bonds extended their recent rally Monday morning, lowering their yields to the neighborhood of 8.4%. But they later gave up most of their gains.
“The market’s behavior has been anything but scintillating,” said Hugh Johnson, an economist with First Albany Corp.
Recent Drop in Interest Rates
“Instead of grabbing the good news and running with it, it backs off. That’s characteristic of a bear market,” he said.
Analysts said traders had turned cautious pending the outcome of the Treasury’s auction of $27 billion in bonds and notes over the next three days.
The recent drop in interest rates has been prompted by expectations of a slowing economy. At the same time, however, it has reduced fears of a recession since lower rates usually serve as a stimulus to business activity.
In addition, some analysts say, lower yields in the credit markets could cause a reappraisal of strategy among investors who had been planning to shift their emphasis from stocks to bonds.
Traders said the market turned bearish in the afternoon and investors focused again on the problems in the economy.
A sharp rise in fourth-quarter inventories suggests American consumers have tightened their purse strings. U.S. officials have said the slack may be picked up by a rise in export sales, but economists note that exports account for only 11% of the U.S. economy, while consumer spending accounts for about 67%.
Brokers also said investors have not regained the confidence they lost after last year’s market crash that took the Dow down 508 points in a single session.
“October did an enormous amount of damage,” Johnson said. The volatility since then has “alienated lots of investors, small and big,” he said.
“You can’t dismiss the recent past all that quickly,” concurred Trude Latimer, an analyst at Josephthal & Co.
“The only thing we have to hang our hat on is lower interest rates. Everything else is a matter of keeping one’s fingers crossed,” she said.
Most investors are poised to take profits at the first sign of trouble, she said. “You don’t have the traditional long-term investor around. You have scared money.”
Philip Erlanger, chief technical analyst at Advest Group, said: “We need the individual investor to come back, and he won’t do that if he sees the shark fins rising from the water.”
Erlanger said the market was trying to rebuild its base. “I take the approach that you should never short a dull market. Out of a base of doubt and frustration will emerge a better market,” he said.
Losers among the blue chips included International Business Machines, down 2 3/8 at 110; Coca-Cola, down 1 3/8 at 36; General Electric, down 1 1/8 at 44, and American Telephone & Telegraph, down 3/8 at 29 1/2.
In London, the Financial Times 100-share index closed down 13.9 at 1,776.9. In Tokyo the Nikkei 225-share average gained 13.19 points to close at 23,732.32. The index gained 98.61 points in half-day trading Saturday.
