STOCKS : Securities Tax Report Pushes Dow Down 32
Blue-chip stocks posted their biggest loss in two weeks Thursday on selling fueled by a report that White House aides were considering a tax on the sale of securities.
The Dow Jones index of 30 industrials, up 69.30 during the past five sessions before Independence Day on Wednesday, dropped 32.42 to 2,879.21.
In the broad market, declining issues outnumbered advances by about 5-to-2 in nationwide trading of New York Stock Exchange-listed stocks, with 397 up, 1,058 down and 495 unchanged. Big Board volume slipped to 128.32 million shares from Tuesday’s 130.05 million.
“That tax trial balloon was the culprit,” said Jon Groveman, president of Ladenburg Thalmann & Co.
A Wall Street Journal report said the White House is contemplating a proposal to levy a tax of up to 0.5% on the sale of stocks, bonds and futures contracts.
“I think that (tax report) really hurt; that, coupled with the fact you had sell programs from the opening bell and nothing to offset them,” said George Pirrone, vice president at Dreyfus Corp.
Program selling contributed to the drop in stocks, but the light volume exaggerated the effect of the selling. Traders were also squaring their books before today’s employment report for June.
Philip Roth, chief technical analyst at Dean Witter Reynolds, believes that at least part of the selloff may have been related to nervousness over the jobs report. While a good report could encourage the Federal Reserve to lower interest rates, there is no certainty that the central bank will act on it.
Analysts also said traders were reluctant to chase after the market’s recent rally, given widespread doubts about prospects for corporate earnings in a sluggish economic environment. Earnings reports for the second quarter of the year are due in large numbers during the next three weeks.
The Dow’s drop was led by GM, down 1 1/8 to 47 1/4; Merck, down 1 3/8 to 86 1/8, and United Technologies, down 1 to 56 7/8. Auto stocks generally were weak despite news of strength in recent auto sales.
Other big losers included AMR, down 2 1/4 to 60 3/4; Wells Fargo, down 2 to 74 7/8, and Wrigley, off 2 1/2 to 54 1/4.
Among S&Ls;, HomeFed plunged 2 points early on, then recovered to finish down 1 1/4 to 19 5/8, after Merrill Lynch upgraded its short-term rating on the stock to “hold” from “below average.”
Winners included Genentech, up 1/2 to 29, and Eli Lilly, up 1 1/2 to 86 1/4. A group of researchers in Milwaukee said a study suggested that some characteristics of physical aging in men could be reversed with a growth hormone made by the two companies.
Elsewhere, Neutrogena rose 1 3/8 to 23 1/8. Analysts attributed the gain to short-covering by traders who had bet that the stock was headed lower.
Microcom tumbled 2 5/8 to 6 1/8. Late Tuesday, the computer networking company revised downward the earnings it reported for its last fiscal year and increased its estimate of the loss that it expects for the quarter ended June 30.
Stock prices closed lower in Tokyo in slow trading as lack of incentives dampened a modest morning rally to end four straight sessions of gains. The Nikkei 225-share index lost 94.25 to close at 32,351.67.
In London, stock prices dropped sharply as investors became worried about the outlook for corporate profits. The Financial Times 100-share index fell 24.1 to close at 2,331.4. In Frankfurt, share prices weakened after early gains to end broadly lower. The 30-share DAX index lost 10.95 to end at 1,914.18.
CREDIT
Bond Prices Fall on Rate Worries Bond prices generally fell, weakened by fear among traders that signs of economic strength are making lower interest rates increasingly unlikely.
The Treasury’s key 30-year bond fell about 3/16 point or about $1.87 per $1,000 in face amount. Its yield increased to 8.40% from 8.38% late Tuesday.
Bond market strategists said the weakness was generated partly by what they called an unexpectedly high figure on 10-day auto sales from Detroit. The Big Three said vehicle sales for late June rose 11.9% over the same level a year earlier. The market had generally expected a rise of less than 7%.
In the view of bond traders, higher auto sales suggest that consumers aren’t afraid to finance expensive purchases, which means they are more confident about the economy. That, in turn, could raise inflationary pressure. So more traders figured that the Federal Reserve won’t ease interest rates any time soon.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8%, down from 8.313% late Tuesday.
CURRENCY
Dollar Ends Higher on Technical Factors The dollar closed moderately higher on world currency markets in light and uneventful trading.
U.S. financial markets were closed Wednesday in observance of Independence Day.
Traders in the United States and Europe attributed the dollar’s rise to technical factors. Lou Calvello, a trader with Prudential-Bache Securities Inc., said several dealers were buying dollars to square up their positions ahead of Friday’s release of unemployment data for June.
The market has been anticipating the Labor Department’s report for several days. “Hopefully it will spark some activity,” said Jim Chorek, an analyst with MMS International in Chicago.
Trading was particularly thin, with many U.S. investors absent from the market as they extended their Fourth of July holiday, dealers said.
Earlier in Tokyo, the dollar rose to 151.00 Japanese yen from Wednesday’s 150.30 yen. Later in London, the dollar traded lower at 150.50 yen. But in New York, the dollar closed higher at 150.57 yen.
In London, one British pound cost $1.7795, cheaper for buyers than Wednesday’s $1.7845. In New York, it cost $1.7815 to buy one pound.
Gold prices fell. On New York’s Commodity Exchange, gold bullion for current delivery traded at $361.40 an ounce, off 70 cents from late Tuesday. Republic National Bank in New York quoted a late bid for gold at $360.50, off 50 cents.
COMMODITIES
Rain Forecast Hurts Corn and Soybeans Prices of corn and soybean futures wilted on the Chicago Board of Trade after the National Weather Service issued a rainy forecast for the Midwest.
Wheat and oat futures also fell but not as steeply as corn and beans, which are grown mainly in the Midwest and would benefit from additional moisture.
On other commodities markets, most oil futures fell; precious metals were lower.
Corn futures settled 4.50 to 10 cents lower, with the contract for delivery in July at $2.86 a bushel; soybeans were 7 to 23 cents lower, with July at $6.285 a bushel; wheat was 1.50 to 5.25 cents lower, with July at $3.1825 a bushel.
Most contracts for delivery of new-crop corn plunged the permitted daily limit of 10 cents a bushel, largely in reaction to a six- to 10-day outlook issued Wednesday by the weather service. The forecast was for normal temperatures and above-normal rainfall over most of the Corn Belt during the latter half of next week.
The losses wiped out gains that had mounted during the past week in reaction to predictions, mostly by private meteorologists, that a pattern of unusually warm, dry air was setting up in the Corn Belt.
