Profit Taking Nudges Stocks Down
Market Overview
Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:
* Stocks ended lower as investors took profits for the second straight day, hitting technology stocks particularly hard.
* Hong Kong stocks dived for the fourth successive day, with the Hang Seng index of top shares losing almost 4% within the first hour as the crisis over the colony’s future political system sends investors bailing out of the market.
* Treasury bond yields finished unchanged as the market largely ignored a surprising drop in new home sales because of questions about the report’s reliability.
Stocks
The profit taking also spread to the secondary market, where it halted a five-day winning streak of record closing highs.
The Dow Jones industrial average ended 8.11 points lower at 3,286.25 on Big Board volume of 247.01 million shares, down from Tuesday’s 263.73 million. Declining issues outnumbered advancers by a margin of about 7 to 6 on the New York Stock Exchange.
“We’ve had tremendous runs to new highs on many of the major indexes, so a short breather is not an unexpected event,” Brown Bros. Harriman investment strategist Ronald Hill said.
“It doesn’t feel like the start of anything major in terms of a downside selloff. We’re just in a situation where we are consolidating the recent gains,” he said.
The Dow lost 11 points on Tuesday, ending a rally that had held through four consecutive sessions.
The NASDAQ market joined Wednesday’s profit taking trend, ending off 1.04 points at 652.91.
Analysts said the markets were in a corrective mode, working off an overbought condition that should set them up for a year-end rally.
“None of the major support levels have fallen,” said Robert Walberg, a market analyst at MMS International.
Analysts said losses in Caterpillar Inc. and Woolworth Corp. were the biggest drag on the 30-stock Dow index. Caterpillar ended 2 3/8 lower at 54 1/4 after it announced that it might have a slight loss in the fourth quarter. Woolworth lost 1 1/8 to 32 1/8. Some traders said stocks were also pressured by seasonal tax-selling.
Among the market highlights:
* Disney was unchanged at 40 3/8, and Kmart lost 1/2 to 26.
* LA Gear, which said it expects to report a loss for the final quarter and the year, fell 1 5/8 to 10 1/4.
* Temple-Inland Inc. was up 1 1/2 to 53, and Xtra Corp. fell 2 to 55 1/4. Elsewhere, Unisys was up 1/2 to 10 1/4; Baker Hughes was up 1/8 to 18 1/2 after dipping a bit early in the day, and Ford fell 3/8 to 42 1/4.
* Tokos Medical dropped 5/8 to 15 5/8 after published reports said the American Medical Assn. expressed ethical concerns about some of the health care firm’s reimbursement practices. Tokos later said it was not conducting any wrongful reimbursement practices.
* Analysts said high-technology stocks weakened the most because of profit taking after scoring some of the biggest gains recently. Microsoft sank 2 3/8 to 90 3/4, Novell lost 1/2 to 30 1/2, and Dell Computer eased 3/4 to 36 1/4.
Overseas, share prices finished lower on London’s stock exchange, with the Financial Times 100-share average ending down 27.9 points, or 1%, to close at 2,764.1.
Stocks closed moderately firmer in Tokyo. The 225-share Nikkei average ended up 80.64 points at 17,393.68.
Frankfurt shares slipped, with the 30-share DAX average losing 10.93 points to close at 1,533.96.
In Hong Kong, political fears drove stocks lower again. Worries about China’s verbal attacks on the colony helped drive the Hang Seng index of top shares down 214.63 points, or 3.97%, to 5,197.02 just after the opening today.
China has threatened to scrap contracts agreed to by Hong Kong’s current authorities after its 1997 takeover.
The Hang Seng index closed down 90.06 points, or 1.64%, to 5,411.65 on Wednesday.
Credit
The yield on the Treasury’s main 30-year bond was unchanged at 7.56% at the close of trading; its price was also unchanged from late Tuesday.
October’s dismal new home sales report also sharply revised September’s results, to a 7% gain from a month earlier. The government had initially estimated that September new home sales fell 1%.
The initial estimates have been adjusted upward, often substantially, every month since September, 1991.
A decline in home sales would normally boost bond prices since it would be a signal that the economy, and possibly inflation, were slowing. Inflation erodes the value of bonds.
The federal funds rate, the interest on overnight loans between banks, fell to 2.875%, down from 3.125% late Tuesday.
Currency
The dollar ended mixed, with most of the action in the foreign exchange markets involving the trading of European currencies against each other.
In New York, the dollar rose to 124.50 Japanese yen from 124.15 yen late Tuesday. The greenback also rose to 1.575 German marks and 5.372 French francs, up slightly from 1.574 marks and 5.367 francs.
Commodities
Lumber futures prices plummeted on the Chicago Mercantile Exchange after the release of the government’s home sales report.
Although many analysts consider the report unreliable, it was enough to trigger profit taking in a market that had risen sharply in recent days.
Meanwhile, light, sweet crude oil for January delivery fell 6 cents to $19.45 a barrel on the New York Mercantile Exchange.
On New York’s Commodity Exchange, December gold rose 80 cents to $335.90 an ounce, and December silver rose 0.3 of a cent to $3.733 an ounce.
Market Roundup, D8
