Stocks Decline on Profit Taking, Inflation Fears; Dow Loses 23.93
Wall Street opened for business in 1989 with a markdown on Tuesday on a rise in concern over interest rates and profit taking.
The Dow Jones average of 30 industrials fell 23.93 to 2,144.64, a drop of slightly more than 1%, although it cut its wider midday loss of more than 35 points. Broader measures of the market posted smaller declines.
Good news was also indirectly responsible for the stock market’s drop. The National Assn. of Purchasing Management reported that the economy grew in December at its briskest rate in five months. The report raised fears that inflation would heat up, and bond prices fell, triggering a sympathetic reaction in the stock market.
“The real problem today was the drop in the bond market and the drop in the dollar. This raised concern about the possibility that the Fed would have to tighten (interest rates) further to protect the dollar from further declines,” said Michael Metz, a market analyst for Oppenheimer & Co.
Computerized program selling added to the pressure on blue chip stocks. Stocks that were not involved in the programs fared better, although most also fell.
Robert Murphy, a senior market specialist for Merrill Lynch & Co., said the first day of trading does not necessarily set a trend for the month or the year. “This might be a sucker punch day,” he said.
Declining issues outnumbered advancing ones by about 3 to 2 in nationwide trading of New York Stock Exchange-listed stocks.
Big Board volumed totaled a modest 128.50 million shares, up from 127.21 million on Friday. The market was closed Monday for the New Year’s holiday.
Among individual stocks, Illinois Power led the actives, unchanged at 19 7/8. It trades ex-dividend starting today.
American Telephone & Telegraph shares were up 1/8 to 28 5/8. AT&T; said it has formed a joint venture company with GTE to bring certain technological capabilities to GTE’s digital telephone switching systems.
McGraw-Hill gained 2 3/4 to 65. Coniston Partners declined comment on rumors that it was building a stake in the publishing firm.
Stocks Off in London
Toys R Us Corp. fell 3/8 to 36 3/4 after Morgan Stanley analyst Walter Loeb said he cut fiscal-year estimates based on expectations of lower-than-expected Christmas sales.
Several stocks rumored recently as takeover candidates were higher. Kimberly-Clark added 2 to 60 1/4; Johnson Controls was up 1 1/8 to 37 3/4, and MCA tacked on 1 3/8 to 46 3/4.
Shares of Sara Lee gained 1 3/4 to 43 3/4. Goldman Sachs raised its recommendation.
Shares of Sooner Federal Savings & Loan Assn. dropped 2 1/2 to 4 1/2. It said it was looking for ways to boost its capital including bringing in new investors.
Holly Farms shares rose 1 1/8 to 56 3/4. The company said it plans to appeal a court decision that enjoins certain provisions of Holly’s merger with Conagra.
Shares of Telematics International fell 1 5/8 to 8 1/4. It expects to report lower net income.
The NYSE’s composite index of all its listed common stocks fell 1.28 to 154.98. The Wilshire index of 5,000 equities closed down 19.829 at 2,718.592.
In foreign trading, stock prices closed near their intra-day lows in London as a drop on Wall Street and a weaker dollar cast a shadow over the London market’s first trading session of 1989. The Financial Times 100-share index closed down 10.3 at 1,782.8.
The Tokyo Stock Exchange remained closed for the New Year’s holiday.