STOCKS : Worries Over Recovery, Earnings Depress Dow
Worries over the nation’s economic recovery and upcoming corporate earnings sparked a sharp selloff in blue chip stocks Tuesday.
The Dow Jones average of 30 industrials lost 24.60 points to close at 2,982.56. It was the key barometer’s first close below the 3,000 level in three weeks.
“A lot of market watchers are uneasy because the market has been unable to hold above 3,000,” said Michael Metz, a vice president at Oppenheimer & Co. “It always seems to turn back down again, and that’s not very encouraging.”
Declining issues outnumbered advancing ones 1,181 to 416 in New York Stock Exchange trading.
Big Board volume totaled 143.39 million, up from 115.10 Monday.
Stock prices sank below the 3,000 level within the first half hour of trading as computer-triggered selling kicked in. Prices remained depressed throughout the session, and losses were posted across the board.
Bearish sentiment was deepened by disappointment that the Federal Reserve failed to make a long-awaited move to cut interest rates.
“It looks like a capitulation by investors who’d been waiting for signs of an economic turnaround,” said Bob Walberg at MMS International.
“People are getting more and more nervous holding on to positions that are basically up on the year when faced with signs of a limping recovery, if there is a recovery at all,” Walberg said.
William Lefevre, a market strategist at Tucker Anthony, said he was not concerned about Tuesday’s losses.
“September and October are two bad months historically,” he said. “I look at it as a function of fewer participants.
Steve Poling, executive vice president at AMEV Advisors Inc., said, “If the market hadn’t gone up so much this year and people made a lot of money, this would be just another autumn. But here we are at pretty hefty levels, and the economy hasn’t showed signs of coming out of a recession. We’ll probably have to wade through another quarter of disappointing earnings.”
Analysts said investors were let down by a lack of Fed action after the August employment data Friday.
“There’s not enough good news,” one trader said.
Among the market highlights:
* First Interstate Bancorp’s stock fell 1 to close at 31 1/8. The company’s directors are expected to meet Thursday to approve a management recommendation to cut the Los Angeles banking company’s quarterly dividend to 30 cents a share from 75 cents.
First Interstate is also expected to disclose soon a restructuring plan that it disclosed in earlier Securities and Exchange Commission documents. A recent Salomon Bros. report estimated that the cost-cutting move would result in a charge of $80 million to $100 million.
* H. J. Heinz fell 2 1/2 to 38 1/4 after it reported disappointing results. Merrill Lynch lowered its fiscal 1992 and 1993 estimates for the company.
* Student Loan Marketing lost 2 1/8 to 62 5/8. Morgan Stanley issued a report warning about the possibility that a House of Representatives subcommittee is drawing up a bill containing a provision to phase out the current system of guaranteed student loans.
* Trimedyne Inc. jumped 1 1/8 to 8 3/4 on U.S. regulatory approval for a new laser catheter to remove fat deposits from blood vessels below the waist.
* Apple Computer sank 3 1/8 to 50 1/8. Oppenheimer downgraded its rating on Apple and on Compaq Computer to a short-term sell. Compaq lost 1 1/8 to 33 7/8.
* Shares of Costco Wholesale lost 2 1/2 to 42 3/4, and Price Co. lost 2 to 59 1/2. Montgomery Securities downgraded the companies on concern about competition in the wholesale warehouse industry.
* IMC Fertilizer rose 1 3/8 to 54 7/8 on prospects of higher industrywide fertilizer prices.
* Summit Technology rose 1 7/8 to 25 after the company said it won German safety certification for a laser system.
Shares closed lower on London’s Stock Exchange, depressed by expectations that several companies soon would be issuing large amounts of stock. The Financial Times 100-share average fell 22.4 points to close at 2,630.8.
German shares recovered most of their early losses and ended a dull trading session narrowly mixed with a slight downward bias. The 30-share DAX average ended 3.94 points lower at a session high of 1,629.12.
Shares closed weaker in Tokyo. The Nikkei 225-share average closed at 22,411.58, down 162.4.
Credit
Long-term Treasury bonds slipped, nudging yields back up to the 8% level as the Federal Reserve apparently refrained from easing interest rates. Shorter-term securities were slightly higher.
The price of the Treasury’s key 30-year bond fell 1/8 point, or $1.25 per $1,000 in face amount. Its yield edged up to 8% from late Monday’s 7.99%.
Trading was light, in part because of the absence of market participants celebrating Rosh Hashanah, the Jewish new year.
The long bond’s yield had fallen on Monday to less than 8%, its lowest level since February, on the perceived probability that the central bank would relax monetary policy to stimulate the economy.
Lower interest rates boost the value of government securities such as bonds and notes.
The federal funds rate, the interest on overnight loans between banks, fell to 5.438% from late Monday’s 5.50%.
Currency
The dollar was mixed against major foreign currencies in a slow session as most traders and analysts awaited release of new inflation reports later in the week.
Many currency traders said they believe that the Federal Reserve will refrain from an expected cut in interest rates at least until Thursday’s release of the producer price report for August.
That report, combined with Friday’s release of the August consumer price index, will provide the latest indication of inflationary trends, said Jim Burtle, manager of foreign exchange service for the Pennsylvania-based WEFA Group.
If the reports show that inflation remains low, that would increase the chances that the Fed would cut interest rates to stimulate the economy through more borrowing, he said. Lower interest rates would tend to hurt the dollar’s value by making dollar-denominated investments worth less .
Curtis Perkins, a trader at Chemical New York Capital Markets Group, said the sleepy market was jolted after reports that three Iraqi soldiers killed a Kuwaiti security guard in a border clash.
Perkins said the dollar rose briefly on the news as some traders sought a safe haven for their investments, but the dollar failed to sustain the gains.
The dollar held steady against the German mark, closing at 1.694 marks in New York trading, the same as late Monday. The dollar was quoted at 134.75 Japanese yen, up from 134.625 yen in late Monday trading.
Other late New York dollar quotes, compared to Monday’s prices, included: 1.4805 Swiss francs, down from 1.4855; 5.7510 French francs, down from 5.7605; 1,267.50 Italian lire, up from 1,266.50, and 1.13995 Canadian dollars, up from 1.13985.
Other late dollar rates in Europe, compared to late rates Monday, included: 1.481 Swiss francs, down from 1.488; 5.768 French francs, up from 5.766; 1.909 Dutch guilders, unchanged; 1,267.25 Italian lire, up from 1,265.50, and 1.400 Canadian dollars, up from 1.139.
Commodities
The specter of the Soviet breakaway republics raising cash by selling gold sent futures prices for the precious metal into a decline Tuesday.
On other markets, wheat was higher while other grains and soybeans were mostly lower; coffee declined; energy futures were mixed, and cattle were higher while pork was mostly lower.
The potential gold sales by the Soviet Union or its republics has been a lingering concern among traders at the Commodity Exchange in New York.
It surfaced again Tuesday when Tass, the Soviet news agency, reported a warning from a top Soviet banker that sudden sales of gold by the breakaway republics could send the world price into a tailspin.
Gold for delivery in December lost $1.20 and settled at $354 an ounce; December silver was 6 cents lower at $4.04 an ounce.
Crude oil futures reversed five days of losses with an 8-cent gain at the New York Mercantile Exchange. Light sweet crude for October was 8 cents higher at $21.41 a barrel.
Market Roundup, D6
