Dow Index Drops 25.41 in Late Trading : Market Overview
Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:
* Blue chip stocks tumbled as futures-related selling and mounting worries about the economy produced a late-afternoon drop. The Dow Jones industrial average slumped 25.41 points to 3,329.49.
* Smaller stocks again were weaker than the Dow. The NASDAQ composite index fell 4.94 points to 564.07, hurt by another selloff in computer stocks.
* Expectations of slowing U.S. economic growth also pushed interest rates and the dollar lower.
Stocks
After drifting for most of the day on modest volume, the market dropped sharply in the last half-hour of trading on a heavy round of computerized selling.
Although the government reported a sharp rebound in housing starts and a fourth straight rise in industrial production in May, investors are nervous that the slow pace of recovery will sap corporate earnings, traders said.
“There’s no conviction, no leadership in the market,” said Tom Luker, senior vice president with Nikko Securities International. “Investors are sitting on the sidelines, and that makes the market more volatile.”
On the New York Stock Exchange, declining issues outnumbered advances by 9 to 7 on volume of 194.40 million shares, up from 164.08 million Monday.
With Tuesday’s loss, the Dow has sunk to its lowest level since it closed at 3,307.92 on April 28.
Many market participants are choosing to focus on any bad news they can find. For example, though the government said housing starts jumped 11% in May, some traders worried that a 0.7% decline in building permits in the same month foreshadows a slowdown ahead.
“The data (does not) show a booming economy,” said Jack Solomon, analyst with Bear, Stearns & Co. “They show we’re just chugging along.”
With many stocks still near record highs relative to expected earnings this year, more investors are choosing to sell now rather than risk disappointment in second-quarter earnings reports due in July, traders said.
Among the market highlights:
* Computer stocks again bore the brunt of the selling, on growing concerns about heated new competition. Compaq this week introduced a host of new low-priced personal computers. The stock fell 2 1/2 to 25 Tuesday after brokerage Alex. Brown cut 1992 estimated earnings to $1.45 from $1.82, expecting Compaq to sacrifice profits to gain market share.
Other PC stocks falling on competitive worries included Apple, down 3 3/8 to 49 1/4; Dell, off 5/8 to 23 1/2, and AST Research, down 5/8 to 15 1/8. Among other tech stocks, Goldman Sachs removed Hewlett-Packard from its recommended list. The stock fell 2 to 68 1/2.
* Despite the growing concern about the economy, industrial stocks whose fortunes are tied to the recovery were mixed. Clark Equipment slid 1 to 26 1/4, steelmaker Nucor fell 1 5/8 to 104 3/8, and Easton lost 7/8 to 80 1/2, but Ford gained 7/8 to 47 5/8, Emerson Electric rose 3/4 to 49 1/8, and Cummins Engine was up 1 to 73 1/8.
Truck-trailer maker Fruehauf was a major casualty, plunging 2 3/8 to 10 1/2. A Fahnestock & Co. analyst cut the stock to sell from buy , citing extremely competitive pricing in the truck market.
* A continuing slide in tobacco giant Philip Morris weighed heavily on the Dow index. Morris tumbled 2 5/8 to 70 3/8 after losing 1 1/4 on Monday, on news that federal prosecutors are probing whether tobacco companies misled the public about the dangers of smoking. Other cigarette stocks finished only marginally lower.
* Financial stocks were a bright spot, perhaps on expectations of lower interest rates. Insurer Argonaut gained 1 to 27 1/4, Calfed rose 3/8 to 4 5/8, Union Bank added 1/2 to 23 1/2, and Citicorp rose 1/4 to 20 5/8.
* In takeover news, fish-processor Arctic Alaska Fisheries rocketed 4 3/4 at 11 5/8 after chicken giant Tyson Foods agreed to buy the firm for $12.75 a share in cash and stock. Tyson lost 1 to 17 1/2.
* Time Warner rose 2 1/8 to 109. Prudential Securities initiated coverage of the media giant with a buy rating.
Overseas, stocks ended sharply higher in London, drawing support from technical factors. The Financial Times 100-share average added 22.7 points to 2,616.3.
Shares closed firmer in Frankfurt, with the DAX average adding 5.20 points to 1,779.10.
Stocks ended virtually unchanged in Tokyo--a respite from a four-day decline--with the Nikkei average up 0.30 points to 16,953.53.
In Mexico City, the profit taking continued, with the Bolsa index losing 49.60 points to 1,692.84, for a two-day loss of 6.5%.
Credit
Bond investors joined stock investors in seeing weakness in the May housing and industrial-production reports.
Interest rates eased across the board, with the Treasury’s main 30-year bond rising 7/32 point, or $2.19 per $1,000. Its yield, which falls when prices rise, declined to 7.83% from 7.85% Monday.
Anthony Chan, senior economist at Barclays de Zoete Wedd Securities, said the industrial production report helped push yields lower. Even though May showed a gain, the April rise in production was revised downward, he noted.
A slowing economy raises the chances that the Federal Reserve will cut interest rates again.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3.625%, down from 3.875% Monday.
Currency
The dollar initially rose on Tuesday’s economic reports, then faded as traders looked more closely at the numbers.
“The market continues to be disappointed with U.S. economic growth,” said Karen Kluge, a currency trader with Credit Suisse.
In addition, she said, higher interest rates in Europe make European bonds more attractive than U.S. bonds, thus pumping up European currencies at the expense of the dollar.
In New York, the dollar closed at 1.564 German marks, down from 1.571 on Monday. It also fell to 126.50 Japanese yen from 126.80.
Commodities
Cotton futures dropped sharply on the New York Cotton Exchange as the sun began drying the soggy fields of Texas.
Cotton for July delivery plunged 1.49 cents to 60.91 cents a pound. The contract had gained more than 4 cents last week as rain soaked fields and threatened big crop losses in the high plains of Texas, the nation’s largest cotton-producing state.
Elsewhere, sagging platinum prices prompted profit taking in gold and silver.
Platinum for July delivery fell $3.50 to $364.90 an ounce on the New York Merc. On New York’s Comex, June gold fell 90 cents to $342.20 an ounce, and July silver fell 3.5 cents to $4.10.
Crude oil futures fell slightly on the New York Merc on confirmation that Iraq and the United Nations will resume talks Friday on lifting U.N. sanctions against Iraq and allowing a sale of Iraqi oil. Light, sweet crude oil for July fell 6 cents to $22.30 a barrel.
