STOCKS : ‘Sacred Cows Slaughtered’; Dow Skids 35.4
Stock prices tumbled Monday, depressed by economic worries and doubts about the durability of the market’s early-1991 rally.
Barely two weeks after breaching the historic 3,000 level, the Dow Jones industrial average finished down 35.40 at 2,876.98. The Dow average was particularly hurt by losses in such widely held issues as IBM and Pepsico.
Big Board volume was a slow 149.9 million shares, down from 153.9 million Friday.
In the broader market, declining issues outnumbered advances by more than 2 to 1 in nationwide trading of NYSE-listed stocks, with 473 up, 1,098 down and 487 unchanged.
The market was rattled after IBM Chairman John F. Akers said the outlook for his company remains uncertain this year, given a lack of signs that the economy is recovering.
“When that type of information comes out, it affects the whole market,” said Ron Doran, director of institutional trading at C. L. King.
IBM’s stock closed down 2 1/2 at 104 7/8.
Investors were also disheartened by first-quarter results at Pepsico, even through the nation’s second-largest soft-drink maker said its first-quarter profit rose 13%. Traders said the gains were not as robust as anticipated. Pepsico’s stock, the most active on the NYSE, closed down 1 3/4 at 30 1/2.
“Some of the sacred cows were taken to the slaughterhouse,” said Michael Metz, chief market strategist at Oppenheimer & Co.
Many investors stayed on the sidelines, however, awaiting the release of April employment data Friday. The report will offer the first official indication on how the economy performed for the month and could spur the Federal Reserve to loosen credit another notch if it is extremely weak.
Investors have been hoping that the Fed would cut interest rates to revive the economy, but so far the central bank has refused to do so. Falling interest rates typically trigger business and consumer spending and bolster stock prices.
“Lower interest rates don’t seem to have much backing for a while, and corporate managements are reporting what they see, and it says the recession is going to last longer than mid-1991,” said Robert Stovall of Stovall/21st Advisers Inc.
Wall Street showed little reaction to personal income and consumption data for March. Income rose 0.2% against expectations of a 0.3% increase, while consumption climbed 0.6% versus an expected 0.2% rise. Another government report said new-home sales rose 1.0%, also the second-consecutive monthly increase. Economists generally had expected new home sales to fall last month.
The already stumbling NASDAQ market tripped on the Big Board selloff late in the session, . closing off 6.90, or 1.39%, to 487.74
Among the market highlights:
* Several government-sponsored companies fell on speculation that reports from the Treasury and the Congressional Budget Office would recommend greater supervision of those entities. Federal National Mortgage lost 1 7/8 to 44 1/4, Federal Home Loan fell 4 1/8 to 75 1/8 and Student Loan Marketing eased 2 1/4 to 50 7/8.
* Stocks of other computer makers fell in sympathy with IBM. Digital Equipment Corp. fell 1 3/8 to 68 1/2, Hewlett-Packard Co. slipped 1 7/8 to 51 3/8 and Stratus Computer fell 1 3/4 to 33.
* Candela Laser tumbled 4 1/2 to 9 3/4 after reporting third-quarter earnings that were much lower than expected.
* Great Atlantic & Pacific fell 4 to 45 3/4 after it said first-quarter profit would be sharply lower.
Overseas markets were mixed. British shares closed sharply higher in thin trading on hopes that interest rates would fall next month. The Financial Times 100-share average closed up 26.9 at 2,498.2. German shares closed lower, with the 30-share DAX average slipping 3.50 to 1,620.28. The Japanese market was closed for a national holiday.
Credit
Long-term bond prices were mostly lower, and some shorter-term maturities were unchanged.
The Treasury’s bellwether 30-year bond fell 7/32 point, or $2.19 per $1,000 in face amount. Its yield was 8.22%, up from 8.20% late Friday.
Economists said word of higher consumer spending and an increase in new home sales dampened the market before noon. The bond market tends to decline on good economic news because long-term fixed-income securities are less attractive in a healthy economy.
As the day wore on without much news, the market returned to worrying about a new supply of government securities at the quarterly refunding auction next week, said Marilyn Schaja, an economist at Donaldson, Lufkin & Jenrette Securities Corp.
The federal funds rate, the interest on overnight loans between banks, rose to 5.938% from 5.675% late Friday.
Currency
The dollar was narrowly mixed as traders sold the currency after lack of agreement among the world’s seven richest countries on lowering interest rates.
The dollar was bid up in anticipation of an agreement among the finance ministers and central bankers to lower interest rates worldwide. But the Group of Seven countries issued a statement Sunday that made only vague promises to take unspecified actions “as needed” to boost world growth while promoting price stability.
The dollar opened higher against the German mark in New York, but traders began selling the currency when it exceeded 1.7700 German marks, said Michael Kahn, senior foreign exchange trader at Credit Suisse.
Kahn said the dollar’s rise against the mark enabled traders to cover technical trades made before the G-7 meeting. In New York, the dollar finished at 1.7510 marks, unchanged from late Friday. It fell to 136.50 Japanese yen, down from late Friday’s 138.10 yen.
The British pound rose in New York, where it cost $1.6980 to buy one pound, more expensive than late Friday’s $1.6905.
Commodities
Grain and soybean futures prices fell sharply amid improved crop weather, fading export hopes and speculative selling tied to the peculiarities of futures trading.
Prices were mixed on other major commodity markets.
Wheat futures settled 3.75 to 6.75 cents lower, with the contract for delivery in May at $2.685 a bushel; corn was 4 to 5 cents lower, with May at $2.4825 a bushel; oats were 4 to 4.50 cents lower, with May at $1.19 a bushel, and soybeans were 12 to 15.25 cents lower, with May at $5.7675 a bushel.
Natural gas futures were hammered in an otherwise quiet energy futures trading session on the New York Mercantile Exchange. Prices fell by 5 cents per 1,000 cubic feet, with June at $1.374 per 1,000 cubic feet. Light sweet crude oil was 2 cents lower, with June at $21.26 a barrel.
In precious metals trading on New York’s Commodity Exchange, gold futures finished $1.80 lower, with May at $352.10 an ounce.
Market Roundup, D10
