STOCKS : Worries About Earnings Push Dow Down 2.90
Blue chip stocks closed slightly lower Tuesday as worries about weak corporate earnings again spooked investors.
The Dow Jones industrial average eased just 2.90 points to 2,910.11, but the broad market was weaker than the Dow indicated. On the New York Stock Exchange, 886 stocks fell while 612 rose.
NYSE volume was moderate at about 155.5 million shares, up from 137.7 million on Monday.
The Dow tried to stage a rebound early in the session after plunging 52.55 points Monday. But the brief rally, fueled by bargain hunters picking up a few issues, soon fizzled. Positive news on a jump in May durable goods orders failed to help sentiment much.
The market was hurt by another barrage of doubts about second-quarter corporate earnings. Wells Fargo became the latest big company to issue a disappointing second-quarter earnings forecast. The nation’s 10th-largest banking company said it is boosting its loan loss reserves by about $350 million in the quarter, slashing earnings.
The news rattled other California bank stocks. BankAmerica fell 1 1/2 to 35 7/8, First Interstate fell 2 1/4 to 34 and Security Pacific lost 1 3/8 to 23 1/4. (Story, D1.)
IBM shook the market last week when it warned analysts to expect at least an 80% slide in second-quarter earnings. A slew of other big companies also have made gloomy assessments since then, casting doubt on the formerly widespread assumption that the economy has already begun to climb out of recession.
“It’s becoming obvious the second quarter is not going to be great for many companies,” said Alice Sadlo, a first vice president at McDonald & Co. in New York.
Yet even before the recent announcements, “The market was ready to correct,” Sadlo says, considering how far it has run up since last fall without a substantial setback. Many experts say the Dow could fall as low as 2,800 from here before substantial buying resumes.
Among the market highlights:
* Western financial stocks in general fell on the Wells Fargo news. Downey Savings lost 3/4 to 16, CalFed fell 3/8 to 5 1/4 and Golden West Financial gave up 7/8 to 34 7/8. Some home builders dropped as well on renewed real estate worries. Standard Pacific lost 1 to 8 1/4 and Ryland eased 1 to 18 1/8.
* Sun Microsystems rebounded 2 1/4 to 27 3/4 as several analysts urged clients to buy the stock. It fell 4 1/8 Monday on earnings concerns. But many smaller tech stocks continued to sink as investors showed no signs of ending their two-month-long selling spree in tech. Among smaller Southland issues, Datron Systems fell 5/8 to 12 7/8, Rainbow Technologies lost 3/4 to 9 1/4, Archive plunged 3/4 to 4 3/4 and State of the Art dropped 7/8 to 7 5/8.
* Airline stocks weakened significantly on economic worries. UAL plunged 6 1/4 to 136, Delta lost 1 3/8 to 67 5/8 and AMR (parent of American) fell 2 1/8 to 58 3/4.
* Drug stocks were relatively strong. Merck gained 2 1/4 to 116 5/8, Bristol Myers rose 1 1/8 to 79 5/8 and Warner Lambert was up 1/2 to 71 1/4. But some other classic growth stocks remained under pressure, including Pepsico, down 7/8 to 28 3/4.
* Oil stocks dropped again, led by Unocal, down 1 to 22 1/4, and Arco, off 1 to 113 3/4.
* The most active NYSE issue was the new offering of International Specialty Products, which closed at 15 5/8 after going public at 15 1/2.
Overseas, share prices rose on the Tokyo exchange, recovering from Monday’s selloff. The plunge had been caused by news that the presidents of the scandal-ridden Nomura and Nikko securities houses would resign. The 225-issue Nikkei average gained 141.96 points to 23,907.42.
European markets also stabilized. In London, the Financial Times 100 index closed up 2.9 points to 2,461.2. In Frankfurt, the 30-share DAX index eased 0.09 points to 1,691.47.
Meanwhile, Brazilian stocks continued to soar, ignoring the rest of the world. In Sao Paulo, the Bovespa stock index jumped 4.1% to an all-time high of 14,168 on record volume. Shares of state oil firm Petrobras led the advance.
Credit
Treasury bond prices were little changed in light trading. Analysts said the market had scant reaction to new, favorable economic data and a two-year T-note auction.
The Treasury’s 30-year bond finished down 1/16 point, or 63 cents per $1,000 in face amount. Its yield held at 8.51%.
The market moved off lows for the day after the two-year note sale. Traders had been pessimistic about the auction, but a strong result apparently help lift the market slightly. Yields on the two-year notes rose to 7.06% from 6.81% at the last auction on May 22. The Treasury will sell five-year notes today.
The federal funds rate, the interest on overnight loans between banks, was quoted at 5.88%, up from 5.69% Monday.
Currency
The dollar closed mostly higher after the government issued a stronger than expected report on durable goods orders for May, showing a 3.8% rise.
The improving economy raises the prospects for higher interest rates, which support the dollar.
The dollar rose against the German mark, to 1.793 from 1.783 Monday. But the dollar had a down day against the Japanese yen, falling to 138.30 from 138.70.
Analysts said the yen was boosted by a Japanese wire service report that said the monetary officials of the Group of Seven industrialized nations had agreed to intervene in currency markets if the dollar rose to 140 yen.
Commodities
Natural gas futures took a wild ride on the New York Mercantile Exchange, bouncing back strongly from record lows in their biggest volume ever.
After yo-yoing, gas for August delivery finally settled up 0.5 cent at $1.123 per 1,000 cubic feet.
The price of natural gas has been plunging lately, with supplies vastly outstripping demand after back-to-back warm winters. But traders decided gas had hit bottom, so they began buying again.
The benchmark Texas intermediate crude oil for delivery in August settled at $20.05 per barrel, up 7 cents.
Gold rose $1.60 to close at $364.60 an ounce on the New York Commodity Exchange. Silver gained 2.5 cents to close at $4.373.
Market Roundup, D6
