Dow Average Declines 20.58 in Late Selling
Market Overview
Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:
* The stock market settled lower after a late wave of computer-triggered selling capped a lackluster session. The Dow Jones average of 30 industrials lost 20.58 to close at 3,039.8.
* Concern about a new supply of Treasury securities and talk of a federal tax cut combined to send government bond prices lower Tuesday in heavy, volatile trading.
Stocks
Profit taking on last week’s record-setting advance, lingering bond market weakness and some bleak corporate earnings reports contributed to the stock market’s decline, analysts said.
A power outage, possibly caused by a faulty switch, halted trading at the NYSE for 24 minutes.
In the broader market, declining issues outnumbered gaining ones by about 4-to-3 on the New York Stock Exchange.
Big Board volume rose to 194.47 million shares from 154.16 million Monday.
“Higher rates do not bode well,” said Edward Shopkorn at Mabon Securities. “The market needs some good news to move forward.”
While some investors had also hoped that an economic upturn was just around the corner, Shopkorn said that Ford Motor Co.’s third-quarter results suggested little sign of a recovery.
Ford, the nation’s No. 2 car maker, reported a huge loss of $574 million, compared to profits of $102 million in the third quarter of last year. Ford fell 3/8 to 28 5/8.
Gene Jay Seagle, director of Gruntal & Co.’s technical research, said profit taking was not unusual after two record closes in the Dow last week.
“I think this is a normal short-term consolidation, which can take us down probably 50 points from the highs to about 3,020 or 3,025. It’s perfectly normal,” he said.
The Dow has fallen 37.35 points since Friday’s record close of 3,077.15.
Ronald Doran at C. L. King said with earnings prospects a “question mark,” many investors were wary. He said a late round of program selling added to the market’s losses.
Among the market highlights:
* Philip Morris fell 2 3/8 to 69 3/8, and RJR Nabisco Holdings slipped 1/4 to 10 1/2 on the Supreme Court’s decision to hear new oral arguments in a major case on the cigarette makers’ liability for smokers’ illnesses.
* Student Loan Marketing jumped 3 1/8 to 61 5/8 after a Senate education panel released a draft of a bill that did not include a direct lending proposal. Such a proposal would threaten Sallie Mae’s guaranteed loan program.
* Pride Co., a refined gasoline maker, dropped 4 7/8 to 22. Shearson Lehman slashed its rating on the company because of concerns about its weak profits on jet fuel production.
* Toys R Us dropped 3 1/4 to 29 3/4. Bear Stearns took it off its recommended list, citing growing profit margin pressure and expectations of stiff price competition.
* AnnTaylor fell 3 3/8 to 16 1/2 after the company said it expects third-quarter earnings of 17 to 20 cents a share, below expectations of 30 cents.
* Morgan Stanley added 1 3/8 to 55 7/8 after it posted strong third-quarter results of $1.52 a share.
* Cognex Corp. fell 10 1/4 to 55 after it said sales in 1992 would decline from earlier expectations because of capital spending cuts in Japan.
Overseas, shares closed easier in London with the market unnerved by the state of the economy. The Financial Times 100-share average finished 16.2 points lower at 2,559.5.
Frankfurt shares closed firmer with the DAX average of 30 blue-chip shares ended at 1,580.71 points, 8.03 points above Monday’s close.
Tokyo stocks clawed back early losses to close only moderately weaker. The 225-share Nikkei average closed down 62.15 points at 24,954.66.
Credit
The Treasury’s bellwether 30-year bond, which fell 1-13/32 point Monday, closed down 1/4 point, or about $2.50 per $1,000 in face amount. The bond’s yield, which moves in an opposite direction from price, rose to 8.09% from 8.07% late Monday.
Concerns also emerged about an oversupply of new Treasury issues. Today, the government is scheduled to auction $13.5 billion in two-year notes; the following day, $9 billion in five-year notes will be sold.
Bond prices fell sharply in Monday’s session after U.S. Sen. Lloyd Bentsen (D-Texas) proposed a new federal tax cut for middle income families as a way to stir up a dormant economy. The White House later said it would advance its own proposal soon.
Mark Green, an economist at Wells Fargo Bank in San Francisco, said many participants believe that the tax-cut package would increase inflationary pressure on the economy. The value of fixed income securities such as bonds diminish during periods of higher inflation.
Also, a tax cut could swell the federal deficit. As a result, the Treasury would have to hold additional bond auctions to refinance the government’s operations, and the additional supply could depress bond prices.
The federal funds rate, the interest banks charge each other for overnight loans, was quoted at 5.188%, down from 5.25% late Monday.
Currency
The dollar was higher in New York in largely directionless trading.
Analysts said the dollar traded in a narrow range and was unable to latch on to any trend.
The dollar closed at 1.700 German marks, up from Monday’s close of 1.693 marks. The dollar ended at 131.40 Japanese yen, up from Monday’s finish of 130.80 yen.
The greenback did take some support from the proposals for a middle-income tax cut as a means of stimulating the economy. The proposals drove interest rates higher in the bond market, which is concerned that too much stimulus could drive up inflation, and in turn, interest rates.
But the prospect of higher interest rates are a positive sign for dollar traders. The dollar, like all currencies, is strengthened by higher rates, which increase foreign demand for American investments.
The British pound gave way to the dollar. Sterling fell to $1.709 in New York trading from $1.717 late Monday.
Commodities
Energy futures took a beating, making traders wonder whether a monthlong rally had run its course.
On other commodity markets, grain and soybean futures prices rose; livestock and meat were mixed; precious metals were mixed, and orange juice retreated.
Light, sweet crude oil for delivery in November settled at $23.48 per barrel, down 56 cents, at the New York Mercantile Exchange.
But that drop may have been exaggerated by the expiration of the contract for November crude. Oil to be delivered later fell more modestly.
Natural gas prices took the biggest hit of all, with contracts for delivery in November settling at $1.910 per 1,000 cubic feet, down 10.3 cents.
Meanwhile, gold and silver futures were little changed on New York’s Commodity Exchange.
October platinum fell $3.80 to $369.40 an ounce; October gold rose 0.10 cent to $363.90 an ounce; December silver slipped 0.8 cent to $4.162 an ounce.
Market Roundup, D8
