Dow Off 10.80; NASDAQ Up Again
Market Overview
- Blue chip stocks fell in a technical selloff, but the broader market managed to put in a mixed performance.
- Treasury bond yields ended lower on comments from the Federal Reserve Board that the market interpreted as meaning the central bank may try to limit inflation.
Stocks
Stocks were poised for a selloff after overnight declines in Asian markets. In addition, analysts said the U.S. market’s rally over the last several weeks has left traders itching for an opportunity to take profits.
A drop in Walt Disney Co.’s share price also hurt the market.
The Dow Jones industrial average shed 10.80 points to close at 3,294.36, snapping a four-day winning streak.
But advancing issues evenly matched declining ones on the New York Stock Exchange.
Big Board volume surged to 263.76 million shares, up from Monday’s 237.62 million.
The Dow opened lower and then flirted with positive territory before resuming its decline. But the broader market was far more resilient.
“The market was much better than the Dow suggested,” said Hugh Johnson, a senior vice president at First Albany Corp.
Indeed, smaller issues surged in over-the-counter trading. The NASDAQ index rose 0.19% to close at a new record for the fifth consecutive session.
Traders were greeted with several reports pointing to a recovering economy. The government said its index of leading economic indicators jumped 0.4% in October, while construction spending advanced 1% to the highest level in mor than two years.
Separately, the National Assn. of Purchasing Management’s monthly index put in a better than expected rise in November.
Johnson said these reports “helped the stock market absorb some pretty hefty profit taking.”
Among the market highlights:
- Disney was the most actively traded issue on the Big Board, sinking 1 13/16 to 40 3/8 as nearly 10 million shares changed hands. Disney Chairman Michael D. Eisner and another top executive confirmed they sold 5 million shares, partly because of uncertainty over what tax policies will be implemented under President-elect Bill Clinton.
- Cyclical issues rose in response to the economic data, reflecting a brighter outlook for industries such as steel, autos and aluminum, which do best in a strong economy.
Among them, Ford rose 5/8 to 42 5/8; Alcan Aluminum was up 1/4 at 17 3/8, and Alcoa added 5/8 to 71.
- Still, an improving economy raises the issue of rising interest rates. The specter of higher rates cast a pall over interest-sensitive stocks such as bank issues. Banc One lost 1 1/8 to 48 3/8; J. P. Morgan fell 1 to 61; Chemical Bank was off 3/4 to 36 3/4, and Chase Manhattan fell 3/8 to 27.
- Retailing was perhaps the hardest-hit sector, with the stocks of major store chains declining across the board. Among them, Kmart fell 1 1/4 to 26 1/2; the Gap lost 1 to 36 3/4; Woolworth shed 1 to 33 1/4, and J. C. Penney fell 3/8 to 78 7/8.
Overseas stocks closed mixed. Tokyo shares suffered a setback in what dealers said was an inevitable correction to recent rallies. The 225-share Nikkei average fell 370.61 points to 17,313.04.
On the London stock exchange, the Financial Times 100-share average closed at 2,792, up 13.2 points.
Frankfurt’s 30-share DAX average ended 0.55 higher at 1,544.89.
Credit
Federal Reserve Chairman Alan Greenspan, in a letter to a prominent congressman, indicated that the Fed will keep a close watch on the nation’s money supply.
Greenspan said in the letter to Rep. Henry B. Gonzalez, (D-Tex.), chairman of the House Banking Committee, that serious consideration should be given to lowering next year’s target range for growth in M2, one of the chief indicators of the nation’s monetary supply.
“In theory, inflation should be held in check as well” by such an action, said Kevin Flanagan, a money market economist at Dean Witter Reynolds Inc. Inflation is one of the chief worries of bond investors.
The yield on the Treasury’s main 30-year bond fell to 7.56%, down from 7.59% late Monday, while its price, which rises when yields fall, was up 11/32 point, or $3.44 per $1,000 in face amount.
The federal funds rate, the interest on overnight loans between banks, fell to 3.125% from 3.375% late Monday.
Currency
The dollar fell against most major currencies, even after the three reports were released showing that the U.S. economy is picking up.
In New York, the dollar fell to 1.574 German marks and 124.15 Japanese yen, down from 1.592 marks and 124.695 yen late Monday. The British pound rose to $1.548 from $1.517 late Monday.
Curtis Perkins, a currency trader at Chemical Bank, said the good economic news showed short-term improvement, but questions about future conditions remain. Currency traders are waiting for Friday’s monthly unemployment report before making significant moves based on the economy, he said.
Commodities
Grain and soybean futures prices faltered on the Chicago Board of Trade after the government suspended Russia from an export credit program for the second time in eight days.
Wheat for delivery in December fell 4.5 cents to settle at $3.758 a bushel; December corn fell 1.75 cents to $2.108 a bushel; December oats were unchanged at $1.408 a bushel; January soybeans dropped 4 cents to $5.598 a bushel.
Meanwhile, light, sweet crude oil dropped 38 cents to $19.51 a barrel, an eight-month low, on the New York Mercantile Exchange, extending Monday’s slide.
Analysts tied the selling to indications that Iraq is moving closer to accepting United Nations terms for resuming oil exports and to last week’s OPEC agreement calling for only a slight cut in crude production.
Gold futures rose slightly and silver edged lower on New York’s Commodity Exchange. Gold rose 80 cents to $335.10 an ounce, while silver fell 0.1 cent to $3.73 an ounce.
Market Roundup, D6
