STOCKS : Dow Off 10.64; Recession Fears Depress Market
Stocks fell Tuesday as fears of recession and weak corporate earnings weighed on the market.
The Dow Jones index of 30 industrials lost 10.64 points to 2,586.14.
In the broad market, declining issues topped advancers about 9 to 5 on the New York Stock Exchange, with 585 up, 999 down and 458 unchanged. Big Board volume came to 145.33 million shares versus 138.65 million Monday.
Investors are torn between hopes for lower interest rates and pessimism over the course of the economy and corporate profits, said Jack Barbanel, president of First Global Asset Management.
On Tuesday, the pessimists won, even though expectations of further credit-easing by the Federal Reserve continued to boost the bond market.
The National Assn. of Purchasing Management, an influential industry group, predicted a recession for the first half of 1991.
“The indications are that fourth-quarter earnings are certainly not going to be robust, and the consensus is looking for a decline,” said Bradley Turner, head of investment policy at McDonald & Co. That means investors will have to weather more bad news early in 1991, so the expectation is that stocks will suffer further.
Among the market highlights:
* Tech stocks led the market lower, after a strong rally in recent weeks. AST Research tumbled 2 1/8 to 28, Compaq dropped 2 3/8 to 55 1/4, Apple gave up 1 3/4 to 40 and Computer Sciences lost 1 1/4 to 46 3/4. Intel fell 2 to 35 3/4 as the semiconductor industry’s book-to-bill ratio for November fell to the lowest since September 1989, indicating slowing orders.
* Occidental Petroleum jumped 1 7/8 to 22 5/8 after the death of its chairman, Armand Hammer. Also, beef packer IBP Inc., of which Occidental owns slightly more than 50%, rocketed 2 5/8 to 19. Traders are speculating that Occidental might be broken up and that it will sell IBP.
Among other oil stocks, selling was heavy as oil prices slipped again. Arco dropped 2 3/4 to 121 3/4, Schlumberger fell 1 1/4 to 53 3/8 and Oryx tumbled 2 3/4 to 38 1/8.
* Financial stocks were mostly lower. Security Pacific slipped 3/4 to 22 1/4, one day after announcing a major restructuring. Elsewhere, Golden West fell 1 3/8 to 23, Citicorp eased 5/8 to 14 3/8 and First Chicago dropped 3/4 to 19. But some real estate-related stocks continued to rise, possibly on optimism that the credit crunch is lessening. Kaufman & Broad added 3/8 to 8 3/4, and Hilton Hotels jumped 2 1/4 to 35 1/2.
* Among apparel stocks, Gitano Group fell 1 3/4 to 13 3/8. A Prescott Ball & Turben analyst cut his earnings estimate. LA Gear lost 3/4 to 16, and K Swiss dropped 2 to 16 1/2. Both athletic shoe makers had been strong of late.
In overseas trading, German shares ended 0.8% below Monday’s closing levels but above the day’s lows, amid signs that a recent rally was running out of steam. The 30-share DAX ended 12.12 points lower at 1,492.68.
Prices on the London Stock Exchange fell in a session extended by 90 minutes to accommodate trading in the 12 newly privatized electricity companies. The Financial Times 100-share index lost 16.7 to 2,165.8.
Stocks closed higher in Tokyo. The key 225-share Nikkei average rose 172.30 to 23,956.97. At midday today, the Nikkei was up another 221.11 to 24,178.08.
CREDIT: Bond Prices Rise for 3rd Straight Day
The bond market continued to rally for a third day, although not to the dramatic levels of previous sessions.
The Treasury’s bellwether 30-year bond closed up 11/16 point, or $6.88 per $1,000 in face amount, after soaring 19/32 point Monday. The bond’s yield fell to 8.07%, down from 8.13% late Monday. The yield had been above 9% as recently as October.
Bond prices soared last Friday after the government said the nation’s unemployment rate shot up to a three-year high of 5.9% in November, creating the worst two-month job loss since the 1981-82 recession.
Bond buyers are betting that the Federal Reserve will ease credit substantially during the next few months to stop the economy from sliding. That could push bond yields much lower.
But Tuesday, analysts said the Fed temporarily drained cash reserves from the banking system in a move apparently aimed at stabilizing the federal funds rate at 7.25%. That key rate often foretells the direction of other short-term interest rates. The fed funds rate traded at 6.875% late Tuesday.
CURRENCY: Dollar Climbs on Hopes of Support
The dollar closed higher on talk that the Group of Seven industrial countries may meet in mid-January, possibly to prop up the tumbling U.S. currency.
Within two hours Tuesday morning the dollar rose from 1.468 German marks to 1.481. At the close a dollar bought 1.478 marks.
The dollar also gained ground against the Japanese yen, closing at 132.40 versus 132.15 Monday.
A senior Treasury official in Washington said major nations are interested in holding a G-7 meeting early in 1991 to take stock of the global economy but added that no final decision has been made.
COMMODITIES: Gold Futures Seesaw, End on Down Side
Gold futures prices retreated on New York’s Commodity Exchange, erasing most of the gains made in the previous day’s trading.
Gold’s losses came on reports that the German Bundesbank would sell 1 billion marks of gold to help finance reunification. After the Bundesbank’s denial of the report, the market rallied, but then fell as energy prices retreated.
“The market jumped on the idea that the Germans were going to sell gold,” said John Steel, an analyst with Refco Inc. in New York. “The story was flimsy. Anyone who knows about gold knows that governments seldom, if ever, sell their gold reserves.”
Gold settled $2.10 to $2.30 lower, with the contract for February at $373.60 an ounce; silver was 1.5 to 1.7 cents lower, with December at $4.07.
Energy futures were lower in quiet trading on the New York Mercantile Exchange as traders consolidated their holdings in anticipation of the release of American Petroleum Institute inventory figures. Light sweet crude oil was 49 to 64 cents lower, with January at $26.41 a barrel.
