Profit Taking Sends the Dow Tumbling 30.19 : Market Overview
* Stocks took a broad hit as profit taking derailed Wall Street’s record rally. After rising for six straight sessions and scoring three all-time highs, the Dow Jones industrial average fell 30.19 points to 3,336.31.
* Treasury bond yields jumped in a delayed reaction to Friday comments by Fed Chairman Alan Greenspan, who suggested that the economy may be growing strongly. The 30-year Treasury bond yield rose past 8% again.
Stocks
After last week’s record run by the Dow, many traders seemed poised to sell stocks Monday, analysts said. New signs of a recovering economy caused a selloff in bonds, which gave traders an excuse to sell many stocks.
Early in the afternoon the Dow was down a little more than 50 points, triggering an automatic restraint on computerized selling. The market began to recover after that “collar” was imposed.
“The bears have been waiting in ambush to dump stocks. A lot of people were afraid of this market at this level, and they saw a good time to sell,” said Peter Canelo, strategist at County NatWest.
By the close, declining issues swamped advancing issues by about 13 to 5 on the New York Stock Exchange.
Big Board volume totaled 192.04 million shares against 233.23 million last Thursday. The market was closed for Good Friday.
As with last week’s activity, the big losers were the health care stocks and other old-favorite growth stocks that have dominated the market for more than three years. Meanwhile, industrial stocks that would gain from a recovering economy continued to climb.
A steep selloff of medical-related stocks on the over-the-counter market helped pull the NASDAQ composite index down a stunning 14.61 points, or 2.5%, to 577.20. In contrast, the Dow fell 0.9%.
Among the market highlights:
* The health care selloff was led by infusion-therapy firm T2 Medical, which plummeted 7 3/4 to 33 1/2 after reporting a slowdown in patient revenue growth to 17% in the recent quarter, from 31% in the previous quarter. The news seemed to galvanize many investors who have begun to fear that growth expectations for health care firms far exceed reality.
Among other medical services stocks falling sharply, U.S. Healthcare fell 5 1/8 to 45 1/8, Quantum Health sank 2 1/4 to 20 1/2, FHP International lost 1 5/8 to 13 3/8, and United Health dropped 5 1/8 to 71 1/4.
* The selloff in drug and biotech stocks also continued unabated. Merck fell 4 1/2 to 144 3/8, Pfizer lost 3 1/4 to 66 1/2, Amgen tumbled 2 1/2 to 54 1/2, and Alza dropped 2 3/4 to 42 1/8. Centocor, which collapsed last week when its key new drug failed to get federal approval, fell another 3 1/4 to 12 3/4. The biotech firm hit 60 1/4 earlier this year.
* Some retail stocks were hit by profit taking. Dillard dropped 5 to 119 1/2, Kmart sank 2 1/8 to 49 3/4, Penney gave up 2 to 63 1/2, and Wal-Mart fell 1 5/8 to 52 7/8.
* Some stocks responded poorly even to good earnings reports. Jacobs Engineering fell 1 7/8 to 28 1/4 despite sharply higher quarterly results. Slot-machine maker International Game Technology sank 1 3/8 to 28 1/2 on its upbeat report.
* The day’s big winners, as in last week’s rally, were mostly industrial issues that should pick up with the economy. Caterpillar, for example, rose 2 1/2 to 56 amid more signs that labor tensions were easing.
Other industrial winners included Cooper Tire, up 2 3/8 to 54 3/4; FMC Corp., up 2 3/8 to 46 3/8; Air Products & Chemicals, up 3 to 49 1/2; Cummins Engine, up 3 1/4 to 60 1/4, and Ford Motor, up 1 1/8 to 43.
Overseas, Tokyo stocks closed sharply lower, but the Nikkei average clung to the 17,000 level on some last-minute buying. It lost 509.33 points, or 2.9%, to 17,071.36. The London and Frankfurt markets were closed.
Credit
Fed Chairman Greenspan said Friday that the economy grew at a 2% clip in the year’s first quarter, greater than many experts believed.
That caused a flurry of bond selling on Monday, as traders began to fear that inflation will return with economic growth.
The Treasury’s key 30-year bond plunged 1 1/32 points, or $10.31 per $1,000. Its yield, which rises when the price falls, jumped to 8.02% from 7.93% Thursday.
Analysts said traders were confused by Greenspan’s upbeat comments, coming so soon after the Fed early last week again eased credit. The bond market now fears that the Fed may be making credit too easy, leading to too-strong growth later in the year.
Also pressuring yields was concern about new Treasury auctions this week, which will dump more bonds on the market. The Treasury will raise $13.68 billion by selling two-year and five-year notes this week.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3.69%, down from 3.81% Thursday.
Currency
The dollar was mostly lower in extremely quiet trading, softened by the four-day Easter weekend in Europe.
In New York, the dollar was quoted at 134.25 Japanese yen, up from Friday’s 133.95. The dollar was also quoted at 1.666 German marks, down from 1.669.
Foreign exchange and gold markets were closed in Europe for a bank holiday following Easter Sunday. Most European markets were also closed on Good Friday, and the currency markets closed early in New York on Friday.
Dealers said many investors went into the extended weekend with large dollar holdings and some took profits Monday.
Commodities
Wheat futures rallied amid expectations of new export sales and deepening worries about the condition of the winter wheat crop.
Other grain and soybean futures also rose on the Chicago Board of Trade in an abbreviated session. The exchange planned to return to normal trading hours today for the first time since an underground flood in downtown Chicago disabled the building’s electrical system on April 13.
Wheat for May delivery rose 6.25 cents to $3.69 a bushel. It was wheat’s sharpest one-day advance since March 9.
Meanwhile, April gold slipped 50 cents to $336.90 an ounce and May silver slipped 0.5 cent to $3.97 an ounce on New York’s Comex.
Light, sweet crude for May delivery rose 3 cents to $20.24 a barrel on the New York Merc.
