STOCKS : Weak Profit Reports Send Dow Down 37.62
After a day of erratic fluctuations, Wall Street stocks closed sharply lower Wednesday amid signs third-quarter corporate earnings could be weaker than expected.
The Dow Jones industrial index ended down 37.62 points, or 1.5%, at 2,407.92, its lowest close since it stood at 2,382.88 on May 11 of last year.
The fall, following Tuesday’s 78 point drubbing, pushed the index almost 20% below its all-time high hit less than three months ago.
Big Board volume came to 167.89 million shares against Tuesday’s 145.61 million. Declining issues outnumbered advances by about 7 to 2 in nationwide trading of New York Stock Exchange-listed stocks, with 356 up, 1,200 down and 434 unchanged.
“I think this reflects a continued concern about corporate earnings,” said Peter Davies, vice president at Nomura Securities. “CBS’s earnings probably has some people re-evaluating (expectations).”
Third-quarter corporate reports are beginning to come out, and a number have shown disappointing earnings.
CBS Inc. on Wednesday reported a 30% drop in its July-to-September earnings and said the soft TV advertising climate is unlikely to improve soon.
Investors, reacting to the report, sent CBS shares tumbling 7 1/2 to end at 158 1/8.
“The underlying earnings momentum is clearly slowing,” Davies said. “And people are getting more concerned, especially against the backdrop of a recession.”
“The market is so fragile it doesn’t take much to push it on the downside,” said Edward Shopkorn, Mabon Nugent’s general partner in charge of institutional equities.
The afternoon dive was also blamed on a poorly received seven-year U.S. note auction.
“The auction was lousy,” said one trader.
Budget developments also discouraged investors.
A number of stocks fell as brokers re-evaluated their outlook.
Among other market highlights:
* In the oil sector, Exxon fell 1 to 48 3/4; Mobil dropped 1 1/8 to 58 3/8; Texaco slid 1 1/8 to 59 7/8; Atlantic Richfield lost 2 5/8 to 129 7/8, and Chevron lost 1 1/2 to 70 3/4.
* Retailing issues also were notably weak. Wal-Mart Stores, the most active NYSE stock, dropped 1 to 25 1/8; J. C. Penney fell 1 1/2 to 38 1/2; Toys R Us was down 1 3/4 to 20 3/4; Woolworth fell 7/8 to 25, and Sears Roebuck lost 7/8 to 23 3/8. Sears has lately set new lows since 1982.
* Novell Inc. shares slipped 1 1/2 to 21 1/2. Merrill Lynch removed the stock off its buy list and cut its rating.
* The stock of BMC Software dropped 3 3/4 to 19 1/4. Alex. Brown & Sons changed its rating to hold from buy.
* Intel Corp.’s shares fell 1/2 to 29 3/4. Dean Witter cut its 1991 estimate on the company, predicting slower sales of its personal computers, inventory imbalances and pricing pressures.
* In over-the-counter trading, Microsoft closed down 3 1/8 at 59 7/8 following a story in the Houston Chronicle on Wednesday on the potential implications of the software concern’s new Windows 3.0 operating system if Microsoft loses a copyright battle with Apple Computer.
In foreign trading, German shares slipped 1.8% on a rumor--denied by U.S. officials--that the United States had invaded Kuwait. The rumor, along with rising oil prices, unsettled an already skittish market. The 30-share DAX index ended 26.30 points lower at 1,407.11 in quiet trading.
Share prices on London’s Stock Exchange closed lower, but reversed earlier losses in latetrading. The Financial Times 100-share index closed down 12.3 points, at 2,121.8.
In Tokyo, the stock market was closed for Sports Day, a national holiday.
CREDIT: Bonds Continue Downhill Slide Inflation paranoia overwhelmed the bond market, wrenching down prices on fears of higher oil prices, Persian Gulf chaos and the government’s seeming inability to resolve the budget-deficit crisis.
The Treasury’s benchmark 30-year bond, which dropped nearly $18 per $1,000 in face amount Tuesday, lost another $9. Its yield, which rises when prices fall, surged to 9.05% from 8.96% late Tuesday.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8%, down from 8.063% late Tuesday.
CURRENCY: Dollar Falls Against Yen to 1 1/2-Year Low The dollar fell to the lowest level against the Japanese yen in more than 1 1/2 years but gained slightly against European currencies.
Like the stock and bond markets, the dollar in general has been under pressure because of the weak state of the economy and Washington’s inability to come to grips with the massive budget deficit.
The yen also benefited from a fall in oil prices, since Japan is nearly entirely dependent on imports for oil.
In New York, the dollar ended at 1.5278 German marks, up from Tuesday’s finish of 1.5238 marks. It also closed at 129.48 Japanese yen, down from 130.25 yen Tuesday.
The British pound was quoted at $1.9705 down from Tuesday’s $1.9730.
The dollar’s close against the yen was its lowest since March 9, 1989, when it finished at 128.75.
COMMODITIES: Oversupplies Whack Silver Futures Prices Silver futures prices plunged sharply on New York’s Commodity Exchange as the market continued to be burdened by abundant supplies.
On other markets, grain and soybean futures were mostly lower; gold prices fell, and livestock and pork futures retreated.
Silver settled 18.4 to 20.7 cents lower, with the contract for delivery in October at $4.409 an ounce.
The 18.8-cent plunge for the December silver contract dropped the metal to a 13-year low.
“The (reason) for the overall weakness of silver is simple. There is a lot of silver around. The supply is enormous,” said Peter Cardillo, an analyst with Jesup, Josephthal & Co. in New York.
Analysts noted that production of silver is increasing as demand from auto makers and the photographic industry is decreasing.
