STOCKS : Recent Price Surge Sends Dow Tumbling 33.67
Investor perceptions that stocks are becoming too expensive helped send prices plunging Friday, putting a down note on a historic week in which the Dow Jones industrial average closed above 3,000 for the first time.
The Dow dropped 33.67 points to 2,965.59, a 1.1% loss. For the week, however, it was up 44.80.
Declining issues outnumbered advances 7 to 4 in nationwide trading of New York Stock Exchange-listed stocks, with 1,028 down, 585 up and 464 unchanged.
Big Board volume was 195.51 million shares, down from 217.41 million the previous session.
Market strategists griped Friday that stocks are becoming overpriced. Tim Shea, strategist for C. J. Lawrence Inc., said another 5% to 7% price run-up could “spoil the party.”
Also driving down stock prices was widespread profit-taking, and fear of higher interest rates. Long-term rates have jumped in recent days on worries that the Federal Reserve has finished easing credit.
Among the market highlights:
* The Dow was pulled lower by American Express, off 1 1/4 to 28; Primerica, off 1 3/8 to 30 3/8; Merck, down 2 5/8 to 111; and International Paper, down 2 to 63 1/2. Philip Morris fell 1 1/2 to 68 1/2 after a scientific panel said second-hand smoke should be considered a cancer threat.
* In the tech group, Texas Instruments lost 2 3/8 to 42 5/8 after analysts lowered their 1991 earnings estimates on it. Microsoft slid 2 3/4 to 107 1/4 after Merrill Lynch cut the company’s rating. But personal computer maker Tandon Corp. jumped 3/8 to 4 1/2, continuing its recent rise.
* Financial services stocks in general were weak, after rising sharply recently. Insurer Twentieth Century Industries tumbled 4 1/2 to 44 3/4; Wells Fargo fell 2 3/8 to 82 3/4.
* In the media arena, Knight-Ridder climbed 2 3/8 to 53 and Gannett rose 7/8 to 43 3/4. Goldman Sachs added both to its recommended list.
* Schlumberger gained 2 1/4 to 62 3/4. Wertheim Schroder repeated a “buy” rating on the oil services firm after its first-quarter earnings were better than expected. Competitor Baker Hughes rose 1 to 29.
* In the small-stock area, the NASDAQ composite index lost 1.1%. But investors continued to pour money into many issues, including such Southland firms as Bridgford Foods, up 2 1/2 to 20 1/2; Dick Clark Productions, up 1 to 4 1/4; Archive, up 5/8 to 8 5/8; and Rainbow Technologies, up 1 1/8 to 11 1/8.
Overseas, Tokyo’s 225-share Nikkei average fell 256.93 points to 26,541.97. For the week, it was down 40.53.
In London, the Financial Times 100 average was off 18.3 to 2,520.1. It lost 6 points on the week. In Frankfurt, the 30-share DAX average dropped 14.39 to 1,599.37 but was up 16.23 for the week.
In Mexico City, the Bolsa index suffered its first loss after eight days of gains to record heights. The index dropped 31,401 points, or 3.3%, to 915,564. Traders said the market was ripe for profit-taking.
Credit
Bond prices sank in thin trading, hurt for a second consecutive day by a report that the Federal Reserve has agreed not to lower interest rates further.
The Treasury’s bellwether 30-year bond dropped 11/16 point, or $6.88 per $1,000 in face amount. Its yield, which rises when prices fall, rose to 8.24% from 8.17% on Thursday.
The Washington Post reported that central bank officials agreed at their March 26 meeting that they “may have lowered interest rates as much as will be needed to end the recession that began last summer.” Bond investors have been hoping for still-lower rates, to boost the value of older bonds.
Concerns of an oversupply of Treasury issues next week also injected a bearish tone into the market. The Treasury is scheduled to auction $12 billion in two-year notes Tuesday and $9 billion in five-year notes Wednesday.
The federal funds rate, the interest on overnight loans between banks, fell to 5 5/8% from 5 15/16% on Thursday.
Currency
The dollar rocketed to a 16-month high against the German mark and also gained against other currencies as confidence mushroomed that the U.S. economy is ready to climb out of recession.
It closed at 1.736 marks, up from Thursday’s 1.705. Early in the day, it traded at 1.738 marks, highest since December, 1989.
Key factors in the greenback’s surge were news of the narrowest U.S. trade deficit in more than seven years; indications that U.S. unemployment may be bottoming out; and reports that neither the Federal Reserve nor Germany’s central bank, the Bundesbank, is moving to ease interest rates. The Bundesbank said interest rates will have to remain high to support the nation’s falling currency and fight inflation.
Many market watchers had anticipated a German rate hike in tandem with a Fed move to ease credit, a scenario that would have hurt the dollar.
“With the German economy having a bit of a problem,” the dollar is the most likely alternative for investment, said John Marchese, economist at Pegasus Econometric Group in Hoboken, N.J.
The dollar also rose to 138.35 Japanese yen from 137.80 on Thursday.
Commodities
Corn and soybean futures prices surged on the Chicago Board of Trade amid expectations that the Bush Administration will grant new export credit guarantees to the Soviet Union. Other grain futures also finished higher.
On other commodity markets, livestock and meat futures were mixed, oil futures rose and precious metals fell.
Corn futures settled 2 to 3 1/4 cents higher, with the contract for delivery in May at $2.56 3/4 a bushel; soybeans were 8 1/4 to 10 cents higher, with May at $5.90 1/4 a bushel; wheat futures were 1 to 2 cents higher, with May at $2.78 3/4 a bushel, and oats were 1 to 1 1/4 cents higher, with May at $1.23 a bushel.
The Agriculture Department revealed early Friday that the Soviet Union is seeking $1.5 billion in export credits to buy food. The Soviets have nearly exhausted $1 billion in U.S. export credits granted in January.
Traders expect the Bush Administration to offer at least $500 million in export credits, at least some of which the Soviets are expected to use to buy corn and soybean meal for livestock feed, said William Biedermann, research director at Allendale Inc., a commodities brokerage firm.
Light, sweet crude oil settled 5 to 36 cents higher on the New York Mercantile Exchange, with May at $21.13 a barrel.
Gold futures were 80 cents to $1.20 lower on New York’s Commodity Exchange, with April at $356.70 an ounce. Silver was 3.4 to 3.5 cents lower, with May at $3.91 an ounce.
Market Roundup, D6
