Dow Off 20.62 as Defense Issues Go Cold
The stock market declined broadly Monday, led lower by selling in defense stocks on prospects for military cutbacks due to the momentous political events in Eastern Europe.
The Dow Jones index of 30 industrials, which had risen 27.05 points last week, dropped 20.62 to 2,632.04.
Declining issues outnumbered advances by more than 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks.
Big Board volume came to 128.17 million shares, down from 151.02 million in the previous session.
Aerospace issues tumbled after Secretary of Defense Dick Cheney called Sunday for a $180-billion reduction in military spending over the next six years.
United Technologies dropped 3 3/4 to 50 5/8, Litton Industries skidded 8 1/8 to 76 3/8, Lockheed fell 3 5/8 to 35 7/8, Raytheon plunged 6 3/4 to 68 5/8, Martin Marietta lost 4 1/2 to 39 1/2, General Dynamics declined 4 7/8 to 44 1/8 and Grumman fell 1 to 17.
An exception was Boeing, up 1 1/2 at 59 1/2 following the weekend news of a tentative settlement between the company and machinists who have been on strike for six weeks.
Losers among the blue chip industrials included International Business Machines, down 3/8 at 98 3/4; General Electric, down 3/8 at 59 1/8; American Telephone & Telegraph, down 3/8 at 42 7/8, and Philip Morris, down 1/8 at 41.
Great Northern Nekoosa gained 5/8 to 61 5/8. Georgia-Pacific, which had made a $58-a-share bid for the company, raised the price tag to $63 and said it might offer still more under the right circumstances.
Jackpot Enterprises, which projected lower earnings for the nine-month period ending next March 31, dropped 1 to 10.
Tokyo share prices succumbed to gravity after climbing for eight consecutive sessions and hitting record closes all last week. The Nikkei 225-share index fell 70.16 points to close at 35,893.58.
Prices closed sharply lower on the London Stock Exchange as shares in defense companies dropped on news that the United States plans to cut military spending following the dramatic political changes in Eastern Europe. The Financial Times 100-share index fell 38.3 points to close at 2,183.1.
Credit
Bond prices rose in slow trading, boosted by the reports of planned cuts in defense spending and weakness in the stock market.
The Treasury’s closely watched 30-year bond rose 1/4 point, or $2.50 for every $1,000 in face value. Its yield, which falls when the price rises, declined to 7.91% from 7.93% late Friday.
Analysts said a gain in bond prices early in the day was based on the reports of a planned cut in defense spending, which would be expected to help reduce the federal deficit.
“That’s what gave us a kick,” said Mitchell Held, chief financial economist at Smith Barney, Harris Upham & Co.
Trimming the deficit would reduce the Treasury’s need to issue securities such as bonds to raise money. A lower supply would mean higher bond prices.
In addition, bond prices were lifted late in the day by the stock market’s broad decline, analysts said. Share prices of defense contractors were hit especially hard because of Cheney’s statement.
A sharp decline on Wall Street tends to drive some investors toward the relative safety of government bonds.
The federal funds rate, the interest on overnight loans between banks, was quoted late in the day at 8.438%, up from 8.375% late Friday.
Currency
The dollar fell against most major foreign currencies Monday as traders were scared off by central bank intervention and the possibility that U.S. interest rates might decline.
Gold prices continued to climb.
Traders said the dollar fell after the central banks of several countries, including the Federal Reserve and the Bank of Japan, sold the U.S. currency in hopes of forcing it lower.
The dollar also was hurt by signs of progress from Washington on cuts, said Jack Barbanel, a foreign exchange analyst with First Global Asset Management Inc.
In earlier trading abroad, the dollar was mixed. Dealers said the dollar initially rose on reports of planned military spending cuts, but the currency was unable to maintain its advance.
Late dollar rates in New York, compared to late Friday’s prices, included: 1.8338 West German marks, down from 1.8410; 1.62975 Swiss francs, down from 1.6307; 6.2435 French francs, down from 6.2630; 1,350.00 Italian lire, down from 1,355.00, and 1.7105 Canadian dollars, up from 1.6945.
The British pound fell sharply against the dollar, prompting the Bank of England to buy pounds for dollars. Dealers said there was some nervousness about the October British trade figures due on Thursday in view of increasing deficits in recent months.
In London, one pound cost $1.5595, cheaper for buyers than late Friday’s $1.5705, and in New York, the pound fell to $1.5582 from $1.5670 late Friday.
Gold bullion prices continued the steady upward climb of the past three weeks and dealers said they expected to see the $400 level tested soon.
In New York, Republic National Bank quoted a late bid of $398 for an ounce of gold, up $3.75. On the Commodity Exchange of New York, an ounce rose $3.60 to $398.20.
Commodities
Copper futures prices were sharply lower on New York’s Commodity Exchange as worries about the U.S. economy fueled a sell-off that began last week.
On other markets, precious metals and energy futures were higher, while grain, soybean, livestock and pork futures were lower.
Copper settled 0.60 cent to 3 cents lower, with the contract for delivery in November at $1.062 cents a pound.
News that copper stocks in London Metal Exchange-approved warehouses increased by 12,000 metric tons weighed on the market. Analysts said the increase in stocks indicates that the economy is weakening.
Defense Secretary Dick Cheney’s remarks Sunday that there could be major cuts in defense spending was also seen as a bad sign for copper.
Precious metal futures rallied on the Comex as prices on the New York Stock Exchange fell and the U.S. Treasury bond market retreated.
Gold was $3.50 to $3.70 higher, with November at $398.20 an ounce; silver was 1.6 to 2.9 cents higher, with November at $5.688 an ounce.
