Airline Stocks Tumble; Dow Drops 27.29 : Market Overview

Blue chip stocks fell sharply after being caught in the downswing of airline issues, which lost ground on concerns about weak 1993 traffic. The Dow Jones industrials sank 27.29 points to 3,205.74. Small stocks also dropped.

* For a second straight session, short-term interest rates rose while long-term yields were stable, as traders reacted to several government reports indicating that the economy is looking better.

* Oil prices snapped back, erasing last week’s losses.

Stocks

Airline shares slid after brokerage First Boston Corp. lowered its 1993 earnings estimates and eliminated buy recommendations on the stocks.

The airlines’ decline sent the Dow transportation average down 27.80 points, or 2%, to 1,350.90, in the process triggering profit taking across the broad market.

Even smaller stocks, which had surged in recent weeks, fell victim. The NASDAQ composite index of smaller stocks dropped 3.15 points, or 0.5%, to 634.01.

On the New York Stock Exchange, losing issues outnumbered winners by about 3 to 2. But volume fell to 175.31 million shares from 192.95 million Friday.

Mark Tincher, analyst at Chase Global Private Bank, said some investors may have turned more sober Monday about the economy, after First Boston’s comments on the still-weak airline industry.

“People a month ago were expecting a rally with a change of administration” in Washington, Tincher said. “As people realize it’s not as easy to get the economy going quickly and federal deficit down all at the same time, that reality will set in.”

First Boston analyst Paul Karos, explaining his change of heart about airlines, said industry revenue growth he had expected for 1993 probably was “too aggressive.” He said consumer demand for airline travel has proven increasingly sensitive to fares, and that the hoped-for reduction in excess industry capacity is being delayed as bankrupt carriers survive longer than expected.

Among the market highlights:

* In the airline group, American Airlines parent AMR sank 2 to 63 1/4 as Karos cut his 1993 profit estimate to $1.00 a share from $6.50. UAL, parent of United, tumbled 5 1/8 to 118 3/4 as Karos revised his 1993 expectation to a loss of $2.00 a share from a profit of $11.00.

Other airline losers included Delta, down 3 3/4 to 53 1/4; Southwest Air, off 7/8 to 25 1/4, and British Airways, down 2 1/2 to 40 5/8.

* Industrial stocks were weak across the board. Alcoa lost 1 7/8 to 64 5/8, Goodyear fell 1 1/4 to 68 5/8, 3M Co. gave up 1 3/4 to 100 3/4, and United Technologies sank 1 1/2 to 42 1/2.

* Disney gave up 1/2 to 40 1/2 on another negative brokerage report on the prospects for Euro-Disney.

* Big-name technology were mostly lower. Electronic parts maker AMP plummeted 7 7/8 to 57 after the company said its fourth-quarter results will be lower than expected. It cited slowing sales in Europe and Japan.

But many smaller NASDAQ technology issues continued their recent rally. Tekelec gained 1/2 to 9 1/2, Tetra Tech added 1/2 to 19 3/4, Xircom rose 1/2 to 10 1/4, and Software Toolworks added 1/4 to 5 3/8.

* Also on the plus side, AT&T; jumped 1 to 46 5/8 after the phone giant won a court ruling against its rivals. A federal court said it’s unlawful for the federal government to require that AT&T; file its rates with regulatory agencies, while rivals don’t. MCI, AT&T;’s chief rival, dropped 1 1/4 to 34 7/8.

Among foreign markets, Toronto stocks plunged after Canadian banks raised their prime lending rates, in direct response to a weakening Canadian dollar. The TSE-300 stock index sank 33.10 points to 3,236.40.

In London, the Financial Times 100-share average closed down 17.90 points at 2,679.60. Frankfurt’s DAX average ended down 1.57 points at 1,546.95.

Tokyo had another bad session, with the Nikkei index losing 167.80 points to 16,162.99.

Credit

Short-term interest rates rose on more signs of a healthier economy, but long-term rates held stable.

The government reported industrial production rose 0.3% in October after slumping much of the summer. Also, business sales were reported to have perked up in September.

The news helped send the yield on three-month Treasury bills up to 3.20% from 3.16% Friday.

Meanwhile, the yield on the Treasury’s 30-year bond dipped to 7.56% from 7.57% Friday.

The trend toward higher short-term rates accelerated Friday when, among other things, government figures showed growth in the nation’s money supply.

Many investors appear to be betting that short-term rates are destined to rise with the recovering economy. However, the stability of longer-term rates suggests investors don’t fear that inflation will resurge with the economy.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3.250%, up from 2.813% late Friday.

Currency

The dollar resumed its rally, rising on the heels of fresh reports pointing toward a reviving American economy.

The dollar settled in New York at 124.70 Japanese yen, up from 124.05 yen on Friday.

It also rose to 1.592 German marks, up from Friday’s 1.573 marks.

Analysts said the dollar’s advance began late Friday after the government reported the nation’s money supply expanded in the recent week. An increase in money supply tends to portend a strengthening economy.

Dollar-buying continued overnight in foreign markets and carried through when trading shifted to the United States on Monday.

Commodities

Oil futures prices snapped back, erasing last week’s losses in a rally prompted in part by expectations that colder weather will raise heating oil demand.

In trading on the New York Mercantile Exchange, light, sweet crude oil for December delivery rose 29 cents to $20.37 a barrel; December heating oil surged 1.07 cents to 58.90 cents a gallon.

“There is anticipation that the colder weather (in the Northeast) that’s forecast for the next week will increase consumption,” said Andrew Lebow, senior broker and analyst at E.D.&F.; Man International Futures Inc.

Also, analysts said there is speculation that the Organization of Petroleum Exporting Countries will agree to lower production to stabilize prices when it meets in Vienna next week.

Meanwhile, on New York’s Comex, near-term gold futures fell $1.40 to $333.90 an ounce, while silver rose 0.2 cent to $3.75.

Market Roundup, D8