Dow Dives on Fears of Weak Earnings : Market Overview
Highlights of Tuesday’s market activity, compiled from Times staff and wire reports:
* Stocks prices fell sharply in heavy trading as fears of weak corporate earnings sent the Dow Jones industrial average on its steepest loss in three months.
* The Dow, initially up about 10 points in early trading, fell 44.03 points to 3,295.17.
* The dollar plunged across the board in hectic trading on world currency markets.
* Prices of Treasury securities climbed again as last week’s interest rate cuts further buoyed the bond market.
Stocks
The losses were concentrated in select pockets of stocks. Drugs, paper products and retailers suffered the worst.
In the broader market, declining issues only outnumbered advances by about 3 to 2 on the New York Stock Exchange.
Big Board volume came to 226.05 million shares, up from 186.92 on Monday. The selling started after two high-profile companies--Dillard Department Stores and Marion Merrell Dow Inc.--were hit with negative news. Analysts said selling in those companies spilled over into the retail and drug sectors, which drove down the Dow Jones average.
Dillard led the active list on the NYSE, down 3 5/8 to 32 1/2. Two securities analysts downgraded the retail chain’s earnings prospects for the second quarter.
Investors sold off shares of other retailers: Gap Inc. fell 1 3/4 to 32 5/8; Wal Mart, down 1 1/2 to 53 7/8, and Sears Roebuck, down 5/8 to 38.
Marion Merrell Dow dropped 6 1/8 to 27 3/8 in heavy trading after the Food and Drug Administration ordered the Kansas City, Mo., drug maker to warn about possible life-threatening side effects of its antihistamine Seldane.
Other drugs stocks went down. Syntex dropped 1 1/4 to 34 1/2; Eli Lilly fell 2 to 65; and Merck lost 3/4 to 50 1/4.
Release of the second-quarter corporate earnings has some traders on edge. Many large industrial companies, such as auto and steel makers, need good earnings reports to justify stock prices that are high by historical standards.
“The real thing will be how the earnings fare and if the earnings can support stocks, especially the cyclicals,” said Eugene Peroni, market analyst for Janney Montgomery Scott in Philadelphia.
Many consumers are delaying new investments in stocks until the corporate earnings picture clears, he said.
Among the market highlights:
* Georgia Pacific lost 4 3/8 to 55 after announcing that it expects a break-even second quarter. Analysts found this news disappointing since the paper products concern reported earnings of 38 cents a share during the second quarter in 1991. The selling spilled over into other paper stocks, such as International Paper, which lost 2 1/4 to 65 3/4.
International Paper’s prospects had no bearing on the Georgia Pacific earnings outlook, said Tony Dwyer, market analyst for Prudential Securities Co.
* Auto makers were mixed, a day after reporting a 24.4% rise in sales during the June 21-30 period. Ford Motor gained 1/2 to 42 5/8; General Motors, unchanged at 40 3/4; Chrysler lost 1/2 to 19 3/8
* Among blue chips, J.P. Morgan was down 1/4 to 59 1/8; International Business Machines fell 1 3/8 to 96 3/4, and American Telephone & Telegraph lost 1/2 at 44 3/4.
Mexican stock prices plunged, falling about 3.5% in value. The drop was triggered by a selloff of Mexican stocks on the NYSE, brokers said.
Preliminary closing data showed that the Mexico stock exchange IPC share index fell 58.72 points to 1,614.19.
Shares closed sharply higher on the London stock exchange, with the Financial Times average surging 24.7 points to close at 2,493.7.
Tokyo stocks ended lower in thin trading. At the close, the 225-share Nikkei average was down 197.52 points to 16,459.55 in thin trading.
Frankfurt’s 30-share DAX average closed 4.85 points down at 1,767.51.
Currency
The dollar tumbled across the board and to a 17-month low against the German mark after Treasury Secretary Nicholas F. Brady said the United States is not worried about its falling currency.
Traders were monitoring developments at the Group of Seven meeting in Munich, Germany, where finance ministers for the leading industrialized democracies have gathered.
The dollar fell sharply to close at 1.490 marks from 1.513 marks on Monday and to 124.05 Japanese yen from 124.30 yen.
Credit
The price of the Treasury’s bellwether 30-year bond rose 3/16 point, or $1.88 per $1,000 in face amount. Its yield, which falls when the price advances, slipped to 7.60% from 7.62% late Monday.
Analysts said there was little news to affect the market. They said investors continued to bid up prices based on the move last week by the Federal Reserve.
The federal funds rate fell to 2.75% from 3% late Monday.
The corporate bond market surged Tuesday as issuers rushed out $3.32 billion in new bonds, seeking to take advantage of the Fed’s rate cut. New issues included $250 million from Exxon Capital, $250 million from Republic New York Corp. and $100 million from Aristar Inc.
Issuers have sold nearly $5 billion since the Fed’s cut, a three-day record, said John Lonski, senior economist for Moody’s Investors Service Inc., a Wall Street rating agency. Analysts expect company treasurers to use most of the proceeds to pay off existing bonds that carry higher rates.
Commodities
Silver futures plunged on New York’s Commodity Exchange after millions of ounces of silver were dumped on the European market, analysts said.
Silver futures plunged 21.8 cents an ounce by midday before bargain hunting boosted prices. Silver for delivery in September settled 15.8 cents lower at $3.895 an ounce.
On other markets, grains and soybeans were higher, livestock and meat futures were mixed, precious metals retreated, and frozen orange juice rallied.
Gold and platinum futures followed silver lower, with August gold dipping 40 cents to $347.10 an ounce.
Elsewhere, light, sweet crude oil futures plunged 49 cents to $21.40 a barrel on the New York Mercantile Exchange on indications that stocks are building because of sluggish demand.
