Earnings and Bond Woes Push Dow Down 17.44 : Market Overview
Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:
* Treasury bond prices tumbled amid diminishing hopes that the Federal Reserve will ease interest rates. The yield on the key 30-year bond, which rises when prices drop, jumped to 7.91% from 7.82% Tuesday.
* The slumping Treasury bond market and a parade of disappointing earnings results set off a selloff in the stock market.
The Dow Jones industrial average closed 17.44 points lower at 2,946.33.
Stocks
Declining issues outnumbered advances by nearly 2 to 1 on the New York Stock Exchange.
Big Board volume came to an estimated 186.71 million shares, against 170.12 million in the previous session.
The NASDAQ over-the-counter index was down 3.44 to 513.81.
“They tossed another log on the fire,” said Robert Walberg, an analyst at MMS International. “We’ve had bad earnings, breadth is weakening and now we have a sharply declining bond market.”
“The weakness in the bond market was all the excuse they (stock investors) needed,” said one trader, who noted that the stock market had been unsteady even before the late afternoon fall.
Among market highlights:
* Nordstrom dropped 8 1/2 to 33 3/4 after the retailer said it expects flat earnings in the third quarter.
* Allied-Signal jumped 4 1/2 to 40 5/8 after it announced a restructuring that will include selling eight business units and cutting its salaried work force by 5,000.
* Merrill Lynch fell 2 1/2 to 45. A newspaper report said federal regulators are looking into whether the broker engaged in illegal securities transactions with a Florida insurer. Merrill said it did not engage in any illegal or unethical activity.
* San Diego-based S&L; HomeFed plunged 1 to 1/2 after the company said additional loan losses may wipe out all of its shareholders’ equity. Other weak financial stocks included Glenfed, off 3/4 to 6 1/4, and Wells Fargo, down 3 3/8 to 65 1/8.
* Marquest Medical dropped 4 to 7 1/2. It said it will suspend U.S.-based manufacturing to comply with changes that the Food and Drug Administration says it needs to make.
* Automatic Data rose 1 1/4 to 35 3/4. Merrill selected it as its “focus stock” of the week.
* Ford Motor dropped 3/4 to 29 7/8. The company said it expects to post a larger loss for the third quarter than it did in the second and faces likely losses for the fourth quarter and the year.
* Elsewhere in the auto group, General Motors lost 1 1/8 to 37 3/8 and Chrysler 1/4 to 10 1/2.
* Other losers among blue chips included General Electric, down 1 5/8 to 65 3/8; Philip Morris, down 1 1/2 to 70 1/8; Exxon, down 3/4 to 59 3/8; International Business Machines, down 3/4 to 97 1/4, and Boeing, down 5/8 to 48 1/4.
Overseas, Tokyo stocks surged just before the close on technical buying. The 225-share Nikkei average rose 329.64 points to 24,485.26.
Afternoon gloom overhanging the London market lifted a little by the close. The Financial Times 100-share average fell 15.4 points to 2,584.1.
In Frankfurt, concerns about the health of the German economy pushed the 30-share DAX average down 11.49 points to 1,567.22.
Credit
The Treasury’s bellwether 30-year bond was down 1 1/2 points, or $10.31 cents per $1,000 in face amount.
Shorter-term securities sustained slight to modest declines.
Traders said they sold bonds after the Fed drained reserves from the banking system, signaling that it was not pushing down the federal funds rate.
The funds rate, the interest on overnight loans commonly made between banks, is a closely watched indicator of the Fed’s intentions.
The rate had fallen Tuesday, and traders speculated that that may have signaled a quarter-percentage-point drop in the target for the rate, believed now to be at 5.25%.
The rate on Wednesday settled at 5%, but that was not seen as reflecting a new Fed target.
“The fact the Fed came in and drained reserves really put a dent in some participants’ hopes that another easing was right around the corner,” said Maria Ramirez, chief executive of Ramirez Capital Consultants Inc. in New York.
Recent developments have raised fears that the Fed may not go ahead with an easing as anticipated after a string of weak economic indicators.
President Bush on Tuesday announced several steps that he said would help boost bank lending.
Analysts said bond prices also suffered after the Treasury auctioned $9.28 billion in seven-year notes. While strong demand for the notes sent yields down to their lowest level since 1987, there was insufficient follow-up in the secondary Treasury market, where investors buy bonds from dealers, observers said.
Currency
The dollar fell against major foreign currencies in trading dominated by largely technical influences and uncertainty over the direction of U.S. interest rates.
Foreign exchange analysts said part of the dollar’s drop was a technical correction after its strong advance Tuesday.
At the same time, they said, the market continued its debate on the direction of interest rates in the United States.
The dollar is supported by higher rates, so the prospect of lower rates helped push the currency lower Wednesday.
The dollar fell to 129.80 Japanese yen in New York from 130.35 Tuesday and to 1.689 German marks from 1.706 marks.
Credit
Gold futures prices advanced on further news of dwindling Soviet gold reserves.
A report in Tass said Soviet reserves are approaching 240 metric tons, lending credence to similar statements that were made earlier.
On other markets, grain and soybeans were lower, energy futures were mostly higher and cattle futures advanced while pork declined.
Gold also benefited from a weaker dollar and surging oil prices.
On the New York Mercantile Exchange, platinum for delivery in January settled $7.10 higher at $367 an ounce.
Gold on New York’s Commodity Exchange was $1.90 higher for December, settling at $362.10 an ounce; December silver was 2.8 cents higher at $4.113 an ounce.
Light, sweet crude oil for delivery in November was up 17 cents at $23.16 a barrel on the New York Mercantile Exchange.
Market Roundup, D8
