Dow Steadies After News of Tokyo Decline : Market Overview
* Stocks were mixed on worries about the plunging Japanese stock market, but most U.S. investors stayed sidelined and trading volume shriveled. The Dow Jones industrial average inched up 0.45 point to 3,236.36.
* Interest rates were also mixed, with the yield on the 30-year Treasury bond rising slightly.
* Gold slid below $345 an ounce to the lowest price in more than 5 1/2 years.
Stocks
The market opened on a cautious note after Tokyo’s Nikkei stock index fell a dramatic 3.0% overnight and closed below the psychologically important 20,000 level.
The Nikkei slumped 618.90 points to 19,837.16 Monday, its lowest level in five years.
Although the Nikkei’s fall was widely expected, it still set traders and analysts on edge. They feared that the decline would spread to other stock exchanges worldwide.
But declines in London and Frankfurt were moderate, and that helped limit the damage in the U.S. market. Still, losers outnumbered winners by about 6 to 5 on the New York Stock Exchange.
Investors’ caution showed in trading volume, which was the slowest this year: 155.95 million shares changed hands on the NYSE, versus 177.9 million Friday.
Gene Jay Seagle, vice president at Gruntal Financial, said the concern about Tokyo’s travails was unwarranted. “History tells us that it isn’t going to spill over,” he said.
Analysts said news that brokerages Dean Witter Reynolds and C. J. Lawrence had advised investors to cut back somewhat on stocks and raise cash levels increased pressure on the market.
Also contributing to the slow day: Many investors are waiting to see the latest economic reports, including those due today on February consumer prices, industrial production and housing starts.
Among the market highlights:
* Continued optimism about an economic recovery pushed many industrial stocks higher. They have led the market since late-December. Alcoa jumped 2 1/8 to 71 1/4, steel maker Nucor gained 2 3/8 to 92 1/8, PPG Industries added 3/4 to 58 1/2, and bearings firm Timken rose 7/8 to 26 3/8.
* Chrysler gained 1/2 to 17 1/4 after it named GM executive Robert J. Eaton to succeed Lee Iacocca as chief. GM was unchanged at 37 1/8.
Other auto- and truck-related stocks were mostly higher on hopes for a continued pickup in consumer spending. Ford rose 1 1/8 at 37 3/4, recreational vehicle maker Fleetwood Enterprises gained 1 1/2 to 42, truck maker Paccar jumped 1 3/4 to 57 1/2, and auto parts firm Superior Industries was up 1 to a new all-time high of 49.
* Elsewhere among industrial issues, lumber giant Weyerhaeuser shot up 2 3/8 to 36 1/8 after an analyst boosted first-quarter earnings estimates. But Eastman Kodak fell 1 7/8 to 40 3/4 after its executives warned that the first quarter “will be a difficult one” and that it doesn’t see a turnaround in the economy until the second half of 1992.
* Utility stocks were a bright spot. Strength in these issues suggests to some analysts that interest rates may be peaking for the near-term. SCEcorp, parent of Southern California Edison, rose 1/2 to 41 3/8. Also, American Electric Power gained 3/8 to 31 3/8, and Detroit Edison added 1/2 to 30 3/4.
* Nike plunged 3 5/8 to 70 1/2 after the athletic-shoe firm reported third-quarter earnings of $1.08 a share, versus 93 cents a year earlier. Some analysts had expected better results.
* Among Southland issues, security firm Pinkerton’s lost 1 3/4 to 27 1/2. It said first-quarter earnings may fall below year-ago results because of expenses related to an acquisition. However, the firm said it still expects 25% earnings growth for the year.
In foreign markets, London’s Financial Times 100 index eased 5.3 points to 2,470.7 in directionless trading. Frankfurt’s DAX index fell 7.84 points to 1,724.80.
In Mexico City, the Bolsa index slid 23.17 points to 1,734.81.
Credit
The yield on the Treasury’s 30-year bond inched up to 8.07% from 8.06% Friday. Yields on most shorter-term bonds slipped.
There were no economic reports to move the market, leaving trading susceptible to rumors. One such report was that Japanese investors may have been in the market to buy U.S. government securities after the sharp drop in stock prices in Tokyo overnight.
That suspicion pushed yields down in early trading, said Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Securities. But “there wasn’t any confirmation” of the rumor and yields rose again, he said.
Treasury securities often benefit during market panics, as investors seek safe-haven investments.
Bond yields have jumped across the board in recent weeks on expectations that the U.S. economy is recovering. New economic reports due today could further confirm the trend, driving rates even higher, traders say.
But many bond investors say that a yield over 8% on the 30-year Treasury bond is extraordinarily attractive, and that at some point buyers are likely to swarm back into the market.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3 5/8%, unchanged from late Friday.
Currency
The dollar eased to 1.661 German marks in New York from 1.669 on Friday. But it rose to 133.85 Japanese yen from 133.65.
The dollar has been rising with signs of growing economic vigor in the United States. Traders expect the dollar to jump again today if new economic reports point to continued growth.
But some traders worry that a surplus of dollars in the world may keep the currency from rising much more. “The dollar is in an overbought condition,” argued Leon Brand, analyst at brokerage Bear, Stearns & Co.
Commodities
Gold prices fell to their lowest levels on the Commodity Exchange in New York since June 24, 1986.
Gold for March delivery was quoted on the Comex at $343.30 an ounce, down $3.40 from Friday.
Silver also fell, with the Comex March contract sliding to 3.7 cents to $4.06 an ounce.
Gold should be expected to rise with a stronger U.S. economy, but analysts say it has fallen steadily in recent sessions on largely technical factors.
Monday, analysts attributed the selling to Australian mining companies and Japanese investors who needed cash because of the weakening Tokyo stock market. Selling also came from commodity fund managers looking to avoid further declines.
In the oil markets, prices eased a bit but continued to hold up reasonably well on the perception that OPEC’s recent production cuts are making a difference.
Light, sweet crude oil for delivery in April settled at $19.15 per barrel, down 3 cents at the New York Merc.
Traders believe that “OPEC is making an effort to hold to its agreement,” said Victor Yu, vice president of futures at the Nikkhah Energy Group of Refco Inc.
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