O&Y;’s Filing Drags Down the Dow : Market Overview
* The stock market fell broadly after Olympia & York, the world’s largest development company, filed for bankruptcy protection in Canada and the United States. The Dow Jones average fell 15.79 points to 3,353.09. It tumbled 16.32 for the week.
* The bankruptcy filing and attractive yields on long-term securities gave bond prices a boost. The yield on the government’s key 30-year bond fell to 7.81% from 7.86% late Thursday. It was the lowest yield since Feb. 12, when the bond also promised 7.81%.
Stocks
Also pressuring stocks was a report released late Thursday by the Federal Reserve Board that showed strong money supply growth and dashed hopes that the central bank will act soon to cut interest rates and spur the economy.
Another factor contributing to the tumble on the broader U.S. market, analysts said, was the expiration of stock index futures and options.
Declining issues outnumbered advances by about 5 to 3 on the New York Stock Exchange, while Big Board volume expanded to 208.84 million shares, up from 200.42 million traded Thursday.
Although many investors were made jittery by the Olympia & York bankruptcy, the market did not fall as far as many analysts had speculated it might.
“The market acted extremely well in the face of Olympia & York,” said Dudley Eppel, managing director of equity trading at Donaldson, Lufkin & Jenrette Securities Corp.
The market, meanwhile, shrugged off the latest economic data. The Federal Reserve said industrial production jumped 0.5% in April in the third straight advance. Economists had expected a 0.2% increase.
Slightly better-than-expected economic figures are no longer moving the market, analysts have said. Investors want signs of strength in the recovery. Many believe that the market is overvalued.
“The market’s tired. It’s the early summer blahs,” said William E. Raftery, an analyst with Smith Barney, Harris Upham & Co.
Among the market highlights:
Banks, which could suffer heavy losses from the Olympia & York troubles, were among the hardest-hit issues.
* Citicorp dropped 3/8 to 19 5/8. Chase Manhattan lost 1/4 to 29 3/8. Chemical fell 1/2 to 37 1/2, Bankers Trust eased 1 to 58 1/8, and J.P. Morgan was down 5/8 at 55.
* Among other actively traded issues, Gap Inc. slid 3 to 33 7/8 after analysts on Thursday lowered the company’s 1993 earnings estimates, and Coca-Cola was up 1/8 at 43 1/4.
* Among blue chips, International Business Machines slipped 1/8 to 91 5/8, American Telephone & Telegraph fell 1/2 to 42 5/8, General Motors fell 1/8 to 39 1/4, and General Electric slid 5/8 to 77 1/4.
* Unilever, a food and beverage concern, was down 3 3/8 to 102 1/8 after announcing poor first-quarter earnings.
* In over-the-counter trading, Quality Medical Management Inc. slid 5 1/4 to 13 3/4, also after announcing poor earnings.
Stocks in Tokyo, London and Frankfurt also fell on the Olympia & York announcement.
Tokyo’s 225-share Nikkei average plunged 730.33 points, or 3.88%, to 18,074.27, leaving it down 301.68 points on the week.
The London stock exchange’s Financial Times 100-share average was down 12.1 points at 2,682.6.
Frankfurt’s 30-share DAX average ended at 1,724.07, its weakest close since April 9 and 18.19 points down on Thursday’s finish.
Credit
The price of the 30-year Treasury bond, which moves inversely to its yield, rose 9/16 point, or $5.63 per $1,000 in face amount.
Economists said the nation’s low inflation rate and slow economic recovery could still prompt the Fed to lower interest rates. That would lower bond yields, so traders scooped up long-term issues at the higher levels.
Market participants apparently believed that the Chapter 11 filing by Olympia & York could prompt a Fed easing even though U.S. banks may not be at great risk from the company’s troubles.
“Generally, when you have financial hiccups of this kind, the bond market rallies because the view is the Fed will become more accommodative,” said Marshall B. Front, president of Stein Roe & Farnham Investment Counsel in Chicago.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3.875%, down from 4% Thursday.
Currency
The dollar closed mostly lower in domestic foreign exchange trading because of technical factors and the growing strength of the German mark.
Germany’s central bank was reported to be buying the currency to push up German interest rates as part of a tight monetary policy, said Walter Simon, a vice president at Bank Julius Baer & Co. in New York.
Currency traders were also keeping an eye on banking company stocks worldwide to see if they were affected by Olympia & York’s bankruptcy filing. Trouble in banking stocks could prompt central banks to lower interest rates, which generally hurts the value of currencies.
In New York, the dollar closed at 129.80 Japanese yen, down from 130.15 yen late Thursday. It also fell to 1.611 German marks from 1.612 late Thursday.
The British pound strengthened to $1.8220 from $1.81875 late Thursday.
Commodities
Coffee futures prices made their strongest daily gain in more than two months on news that Colombia had cut subsidies to private coffee exporters, apparently by up to 50%.
But after the close of trading, a Colombian coffee official said the cuts applied only to a small part of the total subsidy payments. Analysts said Colombian exports probably would not be affected.
On other commodity markets, oil futures rose, and grain, livestock and precious metal futures were mixed.
Raw coffee beans for delivery in May surged 2.75 cents to 65 cents a pound. The move marked coffee’s strongest daily advance since March 6 and extended an upward trend that has characterized the market since coffee futures hit a 19-year low of 58.20 cents a pound on May 6.
Meanwhile, oil futures advanced on the New York Mercantile Exchange, regaining much of the ground lost in several recent sell-offs. On Friday, light, sweet crude oil for June delivery rose 14 cents to $20.69 a barrel.
On New York’s Commodity Exchange, June gold rose 70 cents to $339.10 an ounce, while May silver fell 2.1 cents to $4.086 an ounce.
