STOCKS : Dow Plunges 35 on Budget, Oil Worries
Wall Street’s two main headaches--rising oil prices and federal budget bickering--struck again Tuesday and sent stocks sharply lower. Another batch of bad earnings also hurt.
The Dow Jones industrial index closed down 35.15, nearly 1.5%, at 2,381.19 points, eating up much of the 51-point advance it made in the past two sessions.
Declining issues outnumbered advancers by a margin of about 9 to 4 in nationwide trading of New York Stock Exchange-listed stocks, with 487 up, 1,077 down and 424 unchanged. Big Board volume retreated to 149.57 million shares from 164.98 million on Monday.
Oil jumped almost $1 a barrel Tuesday, and the budget process in Washington still appeared stalled. The two crises have combined for most of the month to make investors uneasy.
Disappointing third-quarter corporate earnings, a falling dollar and computer-trading programs were also cited as culprits in Tuesday’s losses. And most disconcerting to many traders was another round of weakness in key financial stocks.
“It’s a very disorderly market right now,” said Robert Morris, vice president in equity research for Chase Manhattan Bank. Analysts see little relief, especially if economic figures continue to point to recession, as expected.
Among the market highlights:
* Shares of Student Loan Marketing tumbled 6 5/8 to 36 1/2. After the close, the loan financier denied a newspaper report of wrongdoing at its loan servicing center in Kansas. It also denied reports that is was under investigation by the FBI, saying the agency had not contacted Sallie Mae in this regard. Sister agency Federal Home Loan Mortgage slumped 3 1/4 to 38 3/4, and Federal National Mortgage lost 1 3/4 to 27, as investors worried about credit or fraud problems spreading.
* The S&L; sector also took a huge hit once again on loan worries. Golden West Financial plunged 4 3/8 to 19 3/8 after reporting virtually flat third-quarter earnings of 68 cents a share. Great Western Financial lost 1 1/2 to 9 1/8 and H.F. Ahmanson dropped 1 3/8 to 11 1/2, in anticipation of their earnings reports, which came after the market close.
* Key bank stocks dropped anew after Citicorp reported earnings off 43%. That stock fell 1 1/8 to 13. Wells Fargo dropped 1 1/2 to 43 1/8 on its earnings report, and First Interstate fell 3/8 to 18 1/2 on its report. Most banks showed increased problems from defaulted loans.
Louisiana’s Hibernia Bank dropped 1 3/8 to 7 3/4 after it became the latest big bank to slash its dividend because of rising loan problems.
* Investors slammed General Electric stock down 2 7/8 to 51 1/2 after the firm reported a 9% increase in third-quarter earnings. Elsewhere, TRW dropped 2 to 33 1/4 on lower earnings, and American Cyanamid lost 2 to 43 5/8 after reporting a loss.
Many other industrial stocks also sank on recession fears, including Deere, off 1 5/8 to 38 3/8, Ingersoll Rand, off 1 3/8 to 30, and Monsanto, off 1 to 39 7/8.
* Lotus Development rose 1 5/8 to 14 3/8. The software company reported lower third-quarter earnings but said it would buy back 5 million of its shares. Elsewhere, Apple Computer fell 2 3/4 to 25 on worries about the company’s first-quarter earnings, which are expected within a week.
* Among Southland issues, retailer Pic ‘N’ Save plunged 1 3/8 to 5 7/8. Optical Radiation continued its recent slide, down another 1 3/8 to 20 3/4.
* McGraw Hill gained 1 3/8 to 42 1/2. The company said it expects earnings for the year to be at the low end of its forecast range of $3.50 to $4 per share. It reported a slight increase in third-quarter profit, to $1.38 a share.
* Defense stocks were broadly lower, led by General Dynamics, off 1 3/8 to 21, and McDonnell Douglas, down 1 1/4 to 48 3/8.
In London, share prices fell, dragging the Financial Times-Stock Exchange 100 index back below the 2,100 level. The index closed down 18.3 points, at 2,083.6.
German shares closed a quiet trading session 1.2% below Monday’s closing levels as small numbers of selling orders weighed prices down in a thin market. The 30-share DAX index fell 18.17 points to 1,460.72.
In Tokyo, stock prices finished well up but slipped from the day’s highs after profit taking skimmed the top off gains made on the back of a stronger yen and an easier oil prices. The Nikkei 225-share average climbed 496.90 points to 23,606.10.
CREDIT: Bond Prices Higher Despite Oil Surge Government bond prices closed higher, boosted by hopes that tension in the Middle East may be easing, traders said.
The Treasury’s benchmark 30-year bond gained 7/16 point, or $4.38 per $1,000 in face amount. Its yield slipped to 8.89% from 8.93% late Monday.
The bond market seemed to brush off the rise in oil prices, which has been a chief concern of bond investors since Iraq’s Aug. 2 invasion of Kuwait. Bond prices normally fall on signs of increasing inflationary pressures.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 7.938%, down from 8% Monday.
CURRENCY: Dollar at All-Time Low Against Mark The dollar hit an all-time low against the German mark as budget deadlock and fears of recession battered investor confidence.
The dollar is under heavy pressure both from the nation’s budget problems and because of concerns about the economic slowdown, traders said.
In New York, the dollar tumbled to an all-time low of 1.506 German marks before closing at 1.511, against 1.5262 Monday.
The dollar ended at 126.79 Japanese yen, down from 127.73 Monday after sinking to 126.50, the lowest since February, 1989.
The British pound closed at $1.965, up from $1.949 Monday.
COMMODITIES: Crude Oil Futures Close at $38.89 Petroleum futures rallied late in the session on the New York Mercantile Exchange after the United States and Kuwait’s exiled government discounted speculation that Iraq might withdraw from Kuwait if it is allowed to retain three key areas--two islands controlling Iraq’s access to the gulf and part of an oil field.
On other commodity markets, grains and soybeans retreated, and livestock and meat futures fell.
Light sweet crude oil futures settled 85 to 94 cents higher, with November at $38.89 a barrel.
