STOCKS : IBM’s Warning Taken in Stride; Dow Dips 1.56
Blue chip stocks ended slightly lower Thursday after a weak earnings forecast from IBM pulled the market down.
The Dow Jones industrial average posted its fourth consecutive loss, slipping 1.56 points to 2,953.94. Since the start of the week, the average has fallen 46.11 points.
In the broader market, declining issues outnumbered advances 863 to 648 in nationwide trading of New York Stock Exchange stocks.
Big Board volume came to 163.81 million shares as of 4 p.m. EDT, against 156.18 million at the same point Wednesday. In after-hours trading, only an additional 184,000 changed hands.
IBM dropped a bombshell by warning industry analysts to expect at least an 80% slide in its second-quarter earnings.
IBM, a component of the Dow, said earnings have been hurt by global economic weakness, competitive pressures and the transition to new products. Its shares closed down 1 7/8 at 99 1/8 after trading as low as 97 1/8.
The IBM news pressured stock prices through the day. But as IBM bounced up from its lows, the broad market rebounded as well.
In contrast, three months ago the Dow closed down 62.13 points when IBM issued a warning about its first-quarter results.
Some analysts say the market’s relative indifference to IBM on Thursday showed that the stock’s status as a bellwether is waning. “We’re getting very close to the point where we stop reacting to bad news (on IBM),” said Robert Caputo, director of research at Swiss Bank in New York.
Others said the small loss in IBM shares showed that investors haven’t been expecting much of second-quarter earnings from cyclical industrial companies. However, classic “growth” stocks whose earnings are expected to be strong continue to be trounced on word of bad earnings.
Traders also noted that stocks were helped by a firm bond market. Interest rates eased on news of a sharp rise in new applications for unemployment benefits in early June. The Labor Department report soothed investor worries about a fast economic recovery sparking inflation.
“Stocks are more in bondage to bonds than most people thought,” said Robert Stovall of Stovall/21st Advisers.
Among the market highlights:
* Some tech stocks weakened with IBM. Digital Equipment fell 1 3/8 to 61 7/8 and Unisys lost 1/4 to 3 3/4. But AST Research jumped 1 7/8 to 22 1/4 after announcing a sales pact with DEC worth about $100 million.
* Waste Management was the volume leader on the Big Board, falling 2 1/8 to 37 1/4. It said it expects second-quarter earnings to come in below Wall Street estimates. Other environmental companies weakening in sympathy included International Technology, down 1/2 to 8; Browning Ferris, off 5/8 to 26 7/8; and Chemical Waste, off 3/4 to 20 3/4.
* Wednesday’s big loser, Columbia Gas, extended its decline with a loss of 2 3/8 to 18 3/8. The natural gas utility plunged 13 3/4 on Wednesday after warning it could face bankruptcy. Also falling Thursday was Transco Energy, down 1 3/8 to 31. But Panhandle Eastern rebounded 1/2 to 11 3/4 and Consolidated Natural Gas rose 5/8 to 40 1/8.
* Oil-service companies were sharply lower. McDermott plunged 1 3/4 to 19 7/8 after it said it will offer five million new shares of stock. Other losers included Baker Hughes, down 7/8 to 24 3/8; Halliburton, off 1 1/8 to 38; and Schlumberger, off 1 to 58 1/4.
* Microsoft dropped 2 5/8 to 100 3/4. It had tumbled 8 1/8 Wednesday on worries over competitive pressures. The company said Thursday that it was comfortable with Wall Street estimates of $1 to $1.05 a share for its fiscal fourth quarter.
* Johnson & Johnson added 1 1/4 to 84 7/8. Dean Witter repeated a buy rating. Also, Humana continued to rise after reporting slightly better-than-expected earnings for the third quarter. The hospital management firm was up 2 1/4 to 49 1/8.
* Among Southland issues, SCEcorp rose 5/8 to 39 1/2. The utility raised its quarterly dividend 3%, to 68 cents a share. Neutrogena added 1/4 to 15 1/4. Prudential Securities raised its rating on the toiletries firm to buy from hold, citing an improved earnings outlook.
In foreign trading, bargain hunters, aided by a stronger yen and firmer bonds, put the brakes on Tokyo stocks’ three-day slide Thursday, pushing stocks to a modestly higher close. The 225-share Nikkei average ended 85.51 points higher at 24,082.26.
At midday today, the Nikkei was up 185 points.
In Frankfurt, the DAX index rose 4.0 points to 1,687.03.
In London, the Financial Times 100-share index closed down 4.8 points at 2,479.9.
Credit
Bond prices rose as a government report showing a larger-than-expected jump in new claims for unemployment insurance cast some doubt on the strength of the economy’s recovery.
The Treasury’s 30-year bond rose 7/16 point, or $4.38 per $1,000 in face amount. Its yield fell to 8.46% from 8.50% Wednesday.
Bond prices tend to rise on signs of economic weakness on the hopes that the government will lower interest rates to spur activity.
The government said 448,000 Americans filed first-time claims for unemployment benefits during the week ended June 8, an increase of 47,000 from the previous week. The figure, substantially higher than the 15,000 increase market participants were expecting, canceled out improvements in May.
The federal funds rate, the interest on overnight loans between banks, was quoted at 5.75%, up from 5.688% late Wednesday.
Currency
The dollar retreated against the Japanese yen and ended mixed against other currencies amid confusion over this weekend’s meeting of major industrial nations.
Dealers have been selling dollars recently on speculation that Sunday’s meeting of the G-7 major industrial nations may result in a concerted effort to stem the dollar’s powerful rally this year.
However, that speculation was counteracted Thursday when the German Bundesbank indicated it is unlikely that the G-7 meeting in London will result in coordinated currency policy.
In New York, the dollar fell to a closing 138.22 Japanese yen, down from 140.05 yen late Wednesday. But it rose to 1.791 German marks from 1.789.
Commodities
Wheat futures prices hit an eight-week low on the Chicago Board of Trade amid perceptions of plentiful supplies and scarce export demand. Soybeans and corn also turned lower.
Wheat futures settled 8.75 to 2 cents lower, with the contract for delivery in July at $2.805 a bushel; corn was 3.75 cents to 1 cent lower, with July at $2.39 a bushel.
Farmers are actively harvesting winter wheat this week, and quality and yields are expected to be good.
Meanwhile, energy futures prices were buoyed on the New York Mercantile Exchange as investors covered their positions for the July contract expiration of light sweet crude.
Light sweet crude futures settled 3 to 29 cents higher, with July at $20.15 a barrel.
On New York’s Comex, gold settled 70 to 60 cents lower, with June at $367.30 an ounce; silver settled 0.8 cent to 1.1 cents higher, with June at $4.445 an ounce.
