Dow Drops 10 to 3,199 on Profit Taking : Market Overview
* Stock and bond markets were confused by the December employment report, which showed unexpected job growth that could make further interest rate declines unlikely.
* With no clear guidance on the economy, profit takers took control, pushing stocks down and bond yields up.
Stocks
After the market’s recent surge to record highs, “Traders and investors have been looking for an excuse to sell stocks or back away,” noted Hugh Johnson, analyst at First Albany Corp.
That excuse came in the employment report. Although the nation’s unemployment rate rose to a 5 1/2-year high of 7.1% from a revised 6.9% in November, the report showed that non-farm payrolls rose by an unexpected 31,000.
While investors clearly are hoping for an economic recovery--which would mean job growth--many also want to see a continuing drop in interest rates. But a surge in economic activity could preclude more rate cuts. That possibility spooked some investors Friday.
The Dow Jones industrial average, off nearly 20 points during trading, finished with a loss of 10.07 points at 3,199.46. For the week, the Dow lost 2.02 points--after having soared 267 points over the two previous weeks.
New York Stock Exchange volume retreated to 236.13 million shares from 292.35 million Thursday, as declining issues beat advances by a 5 to 3 margin.
Profit taking was also evident in the hot small-stock arena: The NASDAQ composite index lost 4.10 points to 615.70.
Considering stocks’ record-breaking rally of recent weeks, however, some analysts said Friday’s decline was a mere blip.
Among the market highlights:
* Devotees of health care stocks, one of the market’s hottest sectors, were stunned by the collapse of Employee Benefit Plans shares: They plunged 30 1/8 to 30 3/8. The health care plan developer was pummeled after it reported flat quarterly earnings late Thursday.
Even so, profit taking in other health care stocks was relatively mild and was concentrated in biotech stocks. Gensia Pharmaceuticals lost 3 5/8 to 62 1/2, California Biotech dropped 2 7/8 to 23 1/8, and Biogen fell 1 1/4 to 42.
* High-tech stocks gave up some of the recent gains. Exabyte fell 1 1/8 to 33 3/4, Adobe Systems lost 2 1/8 to 60 7/8, Microsoft dropped 2 to 125 1/4, and Lotus fell 1 7/8 to 28 1/8.
* Profit taking also hit airlines again. AMR, parent of American, fell 2 to 69 3/8, Delta slipped 7/8 to 68 5/8, and USAir lost 5/8 to 13 1/8.
* Among the winners, Sears jumped 2 to 39 1/2. Some activist shareholders have indicated that they plan a campaign to try to break up the company.
Overseas, Tokyo stocks plunged again as buyers continued to stay away from the troubled market. The Nikkei average sank 731.74 points, or 3.2%, to 22,381.90.
German stocks soared on hopes that steel industry pay talks will end soon with a moderate settlement. In Frankfurt, the DAX index jumped 25.95 points to 1,615.71.
Shares fell in London, hurt by fears of higher interest rates. The Financial Times 100-share average lost 20 points to 2,477.9.
Credit
Yields on Treasury bonds finished moderately higher as investors cashed in some gains after the market’s recent rally.
The Treasury’s key 30-year bond fell 21/32 point, or nearly $6.56 per $1,000, pulling the yield up to 7.46% from 7.41% Thursday.
Because many buyers of bonds had counted on a deep economic slide--and lower interest rates--in coming months, December’s employment report caused the market to pause. “The market had gotten ahead of itself, anticipating an even worse situation,” said Kevin Logan, economist for Swiss Bank. “When the data didn’t show a serious deterioration, they sold.”
A worsening economy would guarantee that the Federal Reserve would cut interest rates again. Now, many bond traders aren’t so sure.
Meanwhile, the fed funds rate, the rate on overnight loans between banks, was at 3.938%, down from 4.25% Thursday.
Currency
The dollar got a lift from the unexpected strength in the employment report. A stronger U.S. economy would bolster the buck.
The dollar jumped in New York to 1.585 German marks, up from 1.559 on Thursday, and to 126.90 Japanese yen from 125.85.
Commodities
Energy futures, hammered recently by perceptions of an oil glut, recovered some of the week’s losses on the New York Merc. Light, sweet crude oil for February rose 37 cents to $18.23 a barrel.
Meanwhile, gold for February eased 40 cents to $356.20 an ounce on New York’s Comex, after soaring $6 Thursday on largely technical factors. March silver was 4.8 cents lower at $4.11.
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