Traders Reassess War; Dow Declines 17.57
Stock prices closed lower today after last week’s record gains as traders reappraised the Persian Gulf war and decided it could be a long conflict.
The Dow Jones industrial average closed down 17.57 points at 2,629.21. In the broader market, declining stocks outpaced advances by a narrow 8-7 margin. Volume on the New York Stock Exchange was a moderate 136.29 million shares, held down in part by the Martin Luther King Jr. federal holiday.
Traders said that profit-taking from the 145-point gain last week and a more somber mood regarding developments in the Gulf war kept the market under pressure.
“There’s some profit-taking due to the excessive ebulliency that came in last Thursday and Friday, and a majority of market participants are beginning to realize that the Gulf war is not going to be short and sweet,” said Alfred Goldman of A.G. Edwards & Sons.
“This pullback is very normal and very orderly,” said John Brooks, a technical analyst at Davis, Mendel & Regenstein. “The market’s just giving back some of the euphoria.”
Goldman said the market continues to focus on the Middle East, with investors trying to take into account the potential length and cost of the war. “Until we develop a sense of how long a ground war will last, you can forget about (market) fundamentals and technicals.”
Shares of major defense contractors rose on the belief that public sentiment may turn against drastic defense spending cuts following reports of the initial success of U.S. weapons in the war, analysts said.
Among them, Raytheon, which makes the Patriot ground-to-air missiles, was up 4 3/4 to 74 5/8 in early afternoon trading. Defense contractor McDonnell Douglas Co. added 2 7/8 to 34 3/4.
A Painewebber analyst reaffirmed his “buy” recommendation for Eli Lilly & Co. Lilly rose 7/8 to 75 3/4.
L.A. Gear fell 2 5/8 to 10 3/4. The company estimated a $4 million loss for the fiscal fourth quarter ended Nov. 30.
U.S. interest rates turned upward. In the credit markets, prices of long-term government bonds dropped about $5 for each $1,000 in face value, increasing their yields to about 8.21%.
The missile attacks on Saudi Arabia and profit taking that began overnight in foreign markets sent bond prices lower in early trading today, traders said.
The Treasury’s bellwether 30-year bond was down 13/32 point, or $4.06 per $1,000 in face amount, by midday. Its yield, which rises when prices fall, was 8.2%, up from 8.17% late Friday.
“The news on the Gulf has not been as euphoric as the initial reports Wednesday night, so the market is backing off,” said Elliott Platt, research director for Donaldson, Lufkin & Jenrette Securities Inc.
“People are a tad less optimistic about a quick resolution for the war and that, of course, means more risk for the bond market.”
