FINANCIAL MARKETS : STOCKS : Dow Falls Back Below 3,000 in Profit Taking
Profit taking and falling bond prices pulled the blue-chip Dow index down to slightly below the milestone 3,000 level Thursday.
The Dow Jones average of 30 industrials held up better than the broader market, falling 5.20 to 2,999.26, back under the mystical 3,000 mark. Still, it was the third-highest close in history, following Wednesday’s record-breaking close of 3,004.46.
Smaller stocks didn’t fare as well as components of the Dow average. Declining issues outnumbered advances by about a 9-7 ratio in nationwide trading of New York Stock Exchange-listed stocks, with 917 down, 708 up and 462 unchanged.
Big Board volume was active at 217.41 million shares, against 246.93 million Wednesday.
“Today reminds me of 30 minutes after midnight on New Year’s Day,” said David Holt, director of technical research at Wedbush Morgan Securities. “The market has been so strong for so long and it’s left everybody exhausted from the emotional drain.”
The Dow rose to a high of about 3,018 Thursday before succumbing to an afternoon selloff.
“To see some selling after hitting 3,000 is not unusual,” said David Bostian, chief economist at Jesup Josephthal & Co. “The bond market was weak today, and that also created some sympathetic selling.”
Hugh Johnson, chief investment officer at First Albany Corp., said the sharp divergence between stocks and bonds “usually means that investors feel a little more ebullient about the economy.”
Johnson noted that such previously shunned basic industry groups as chemicals, paper and aluminum were doing better, a sign that investors are betting on an economic upturn.
First-quarter earnings reports have not been as disastrous as some investors had feared.
“Earnings have come in with more upside than downside surprises,” Holt said. “We know stocks aren’t cheap, but people are buying on next year’s earnings.”
Among the market highlights:
* Tandem Computer was the most actively traded Big Board issue, gaining 1 7/8 to 16 on more than 3.2 million shares. Its quarterly earnings were better than expected.
* Seagate Technology slid 4 1/2 to 13 5/8 on a disappointing earnings report.
* Digital Equipment Corp. gained 4 to 70 3/8 after posting earnings roughly in line with expectations.
* Auto stocks rose as Wall Street reacted with relief to the end of the national rail strike and investors looked to snap up bargains in the wake of the record market rise. Ford rose 1 1/4 to 33 3/4, General Motors added 1 to 39 7/8 and Chrysler gained 3/8 to 14 1/4.
* Shares of paper firm Stone Container rose 1 1/8 to 16 3/4. Bear Stearns upgraded the stock to strong buy from hold.
* Intermec’s stock jumped to 6 5/8 to 24 1/8. Litton Industries agreed to pay $24 a share for Intermec.
* Puget Sound Bancorp rose 2 to 27 1/2, and Bancorp Hawaii added 2 to 61 on strong first-quarter earnings.
Smaller issues didn’t fare well. The NASDAQ over-the-counter index fell 4.69 to 506.62.
Several foreign markets closed modestly lower. Tokyo’s 225-share Nikkei average ended down 181.47 points at 26,798.90. In London, the Financial Times 100-share average was down 6.6 points at 2,538.4. Germany’s 30-share DAX average slipped to 1,613.76, down 10.07 points.
Credit
Bond prices fell sharply, jolted by signs of economic recovery and a front-page Washington Post report that the Federal Reserve was undivided in its resolve to hold the line on interest rates.
The Treasury’s bellwether 30-year bond dropped 25/32 point, or $7.81 per $1,000 in face amount. Its yield, which moves in an opposite direction from price, rose to 8.17% from 8.10% late Wednesday.
Short-term Treasuries were hit particularly hard. Yields on three-month bills rose to 5.90% as the discount shot up 18 basis points to 5.73%.
Bonds tumbled in early trading after a U.S. government report that initial jobless claims for the week ended April 6 fell 22,000, contrary to market expectations that they would rise. The decline--the second in as many weeks--was interpreted as a sign that the recession might be bottoming out.
An improving economy leaves the Fed with less incentive to lower interest rates, which in turn would prop up bond prices.
An article in the Washington Post evaporated any remaining hopes that the central bank would use a credit easing soon to nudge the nation out of recession, market analysts said.
The article rebutted other newspaper reports that Fed Chairman Alan Greenspan had been challenged on his desire to lower interest rates, saying “Federal Reserve officials deny publicly and privately that an uprising against Greenspan occurred.”
The article didn’t tell the market anything new about the Fed’s inflexibility. Early this week, the central bank drained banking system reserves an hour earlier than usual in a move widely interpreted as a sign that it will keep interest rates stable.
The federal funds rate, the interest on overnight loans between banks, rose to 5.938%, up from 4.50% late Wednesday.
Currency
The dollar surged on world currency markets amid the backdrop of positive news that hinted that the U.S. economy might be poised to emerge from recession.
The dollar advanced in Europe and continued to climb in domestic markets, piercing several key technical levels.
In New York, the dollar posted its largest gain against the German mark, jumping to 1.7052 marks from 1.6684 at Wednesday’s close. It ended at 137.80 Japanese yen, up from 136.19 on Wednesday.
Other late dollar rates in New York, compared to late Wednesday’s rates, included: 1.4570 Swiss francs, up from 1.4225; 5.7615 French francs, up from 5.6430; 1,262.00 Italian lire, up from 1,237.00, and 1.1523 Canadian dollars, up from 1.1503.
Commodities
Prices of oil, precious metals and other commodities fell amid a flood of sell orders from computer-driven funds and indications that inflation is cooling, traders said.
In the precious metals pits, most-active May silver tumbled 15 cents to $3.945 an ounce on New York’s Commodity Exchange. Losses in silver dragged June gold futures down $3.50 to $360.20 an ounce.
Oil prices moved sharply lower, with May crude down 63 cents to $21.08 a barrel on the Nymex.
Market Roundup, D6
