Dow Tumbles 53.71 as Buyers ‘Boycott’ the Market : Stocks: Some analysts blame the nearly 2% fall on nervousness about interest rates and corporate profit.
Just when you thought it was safe to get back into the stock market, the Dow Jones industrial index fell a whopping 53.71 points Monday, the biggest daily loss since January. The index closed at 2,882.18, down from Friday’s record close of 2,935.89.
Although market experts had many explanations for the decline, none could account for the size and scope of the nearly 2% drop in the key market indicator.
There was some profit taking by investors who rode the market to record highs last week. There was some nervousness about interest rates and corporate profit. And there was some computer-driven program selling. But, mostly, there was little or no buying, according to market experts.
“You had a buyers’ boycott,” said Jon Groveman, president of Ladenburg, Thalman & Co. in New York.
Selling was not heavy--volume on the New York Stock Exchange was a scant 133.47 million shares, compared to 205.13 million traded on Friday--but virtually no big players stepped up to the plate to buy, Groveman noted. That translated to a slow day of steadily falling prices.
Declining issues led advancing issues by a 4-to-1 margin.
What it all means is equally uncertain. Some experts maintained that this was the beginning of a longer-term fall that will pull the Dow Jones index down another 10% to 20%. Others said it was a temporary setback in the market’s nearly unrelenting march forward.
Others admitted that they were unsure about the meaning of Monday’s slide.
“Over the last six to eight weeks, we have had these periodic, one-day selloffs on light volume that have amounted to absolutely nothing,” Groveman added. “We are just going to have to wait and see if the bulls gain control of the ball quickly or if we have a more sustained correction.”
A number of experts attributed part of Monday’s fall to interest rates. Over the past several weeks, the stock market has benefited from a growing belief that the Federal Reserve would soon lower interest rates to spur the nation’s flagging economy. But on Friday, the government released figures on industrial output indicating that the economy might be stronger than anticipated, which could cause the Fed to delay any cut in interest rates.
Meanwhile, investors are waiting to see what happens with corporate profit, which has been lackluster since late last year. The bulk of the nation’s biggest companies will be reporting second-quarter and first-half results over the next four weeks. And those results will have a pivotal effect on how well stocks fare over the coming months, analysts said.
If profit is down, stocks may begin to look expensive, as measured by price/earnings ratios or dividend yields. Before Monday’s selloff, stocks in Standard & Poor’s 500-share index were selling for about 16.8 times earnings and dividend yields amounted to about 3.3%.
“That does not make stocks grossly overvalued, but doesn’t make them look cheap either,” said Gerald Appel, publisher of Systems and Forecasts, a market newsletter published in Great Neck, N.Y.
Program trading also played a role on Monday. About 45 points of the 53-point drop could be attributed to nine bouts of computer-driven selling, said Laszlo Birinyi, president of Birinyi Associates in New York. That wasn’t particularly unusual activity, Birinyi added, but its effect was magnified because there were so few buyers.
Nearly every industry group was hard hit in Monday’s selloff, including the market’s recent favorites such as the technology sector.
IBM closed down 1 5/8 at 118 3/4; Software Toolworks fell 4 7/8 to 19; Sun Microsystems lost 1 to close at 32 7/8; AST Research fell 1 1/2 to 22 1/4; Teradata dropped 1 1/8 to 26 5/8, and Compaq tumbled 4 3/8 to 123 5/8.
Financial stocks slipped with BankAmerica closing at 29 7/8, down 1; Wells Fargo was down 2 5/8 to 76 7/8; Citicorp was off 1/2 to 23 and First Interstate Bancorp fell 7/8, closing at 42 3/8.
Other big losers included blue-chip issues, such as Disney, which fell 4 5/8 to 127 1/8; Procter & Gamble, which closed down 1 7/8 to 82 1/2, and Boeing, which was down 1 1/8 to 59.
A handful of stocks bucked the downtrend, including Motel Six, which rose 1 to close at 15 7/8, and Chrysler, which inched up 1/4 to 15 3/8.
The S&P; 500 index fell 6.03 points to close at 356.88, while the New York Stock Exchange composite index fell 2.93 to 194.93. The NASDAQ index declined 6.76 to 460.79 and the American Stock Exchange composite index dropped 3.27 to close at 360.76.
In foreign trading, stock prices on the Tokyo Stock Exchange closed down 161.60 points to 32,376.80 as a lack of fresh trading news kept investors sidelined. Prices also closed lower in London after a poor early showing on Wall Street. At the close, the Financial Times 100-share index was down 21.8 points at 2,370.5.
CREDIT: Bond Prices Decline as Selloff Continues Bond prices fell in light trading as the market continued a selloff from last week sparked by concern that interest rates won’t decline soon.
The Treasury’s benchmark 30-year bond lost 13/32 point, or $4.06 per $1,000 in face amount. Its yield, which rises when prices fall, climbed to 8.46% from 8.42% late Friday.
Analysts said there was little economic news to affect bond trading, and the market followed its downward path from Friday, when the government issued a report showing industrial production rose at a greater-than-expected pace in May.
The market interpreted the report to mean that it was unlikely the Federal Reserve would act to ease interest rates soon, since the report indicated that inflation may be rising.
Falling interest rates can boost the value of fixed-return investments such as bonds.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.25%, unchanged from late Friday.
CURRENCY: Dollar Takes Beating on Technical Factors The dollar fell against most other major currencies, buffeted by technical factors and expectations of lower U.S. interest rates.
The dollar spent most of the day drifting downward in a continued response to last week’s producer and consumer price reports. The data indicated weaker U.S. demand and heightened prospects for interest rate cuts, dealers said.
Traders believe that the Federal Reserve, which sets the nation’s monetary policy, is more likely to nudge interest rates lower to stimulate the economy amid signs of a slowdown. Such a move would be bearish for the dollar, which is more attractive to investors when U.S. rates are higher.
COMMODITIES: Grain, Soybeans Up After 3-Day Slump Grain and soybean futures rallied on the Chicago Board of Trade, ending a three-day slide amid buying prompted in part by concerns about flood damage to corn and soybean crops.
On other commodity markets, pork bellies extended their recent sharp losses while livestock futures were mixed; orange juice futures plunged again; copper futures rose, and precious metals were mixed.
Wheat futures settled 2.50 cents lower to 2 cents higher in Chicago, with the contract for delivery in July at $3.30 a bushel; corn was 3.50 to 6.25 cents higher, with July at $2.865 a bushel; oats were 2.75 to 3.75 higher, with July at $1.4225 a bushel; soybeans were 2 to 11.75 cents higher, with July at $5.96 a bushel.
Most of the buying in the corn and soybean markets represented profit taking by traders who sold contracts last week, establishing “short positions,” and bought them back Monday at lower prices, analysts said.
Further buying after the mostly lower opening was prompted by reports that heavy weekend rains damaged newly planted corn and soybeans in low-lying areas of central Iowa, central Illinois and southern Ohio.
