THE CLINTON ECONOMIC PLAN : Stock Market Stabilizes as Investors Await Specifics : Wall Street: Bond prices continue their rally, while traders brace for ‘another wild and woolly day.’
The stock market stabilized Wednesday as investors waited for President Clinton to lay out the specifics of an economic program whose broad outlines had so spooked traders and investors Tuesday.
Gains continued in bond prices, meanwhile, with traders presuming that the President’s efforts to shrink the budget deficit will keep inflation in check.
The closely watched Dow Jones industrial average managed to eke out a 2.70-point gain to close at 3,312.19, after tumbling 83 points Tuesday on fears of higher taxes and presidential jawboning of the drug industry.
Broader stock market indexes, such as the Standard & Poor’s 500, declined slightly.
“This is the calm before the storm. I’m expecting another wild and woolly day on Thursday,” said Bill Raftery, vice president and technical market analyst at Smith Barney, Harris Upham & Co., a New York brokerage.
“Everything was wait-and-see; volume was down, selling pressure was off,” added Brad Weeks, senior vice president for equity trading of Donaldson, Lufkin & Jenrette Inc. in New York. “But I guarantee you one thing: We’re either going to be up or down 50 points in the first hour on Thursday.”
Volume on the New York Stock Exchange was 287.18 million shares, down from 325.37 million Monday, and losing stocks outnumbered gainers 1,152 to 768. The prices of 535 stocks were unchanged.
Japanese stock prices closed the morning up today, before Clinton’s speech. Brokers said the speech was unlikely to have a major impact when the market reopened in the afternoon.
Bond prices, which move inversely to interest rates, maintained their rally Wednesday on investor expectations that the deficit-reduction elements of the President’s program will restrain short-term economic growth--and therefore keep inflation firmly under control.
“The bond market is turning in a very solid performance,” said Lawrence Leuzzi, managing director for government bonds at S. G. Warburg & Co. in New York. The closing yield on 30-year Treasury securities dipped to 7.09% from 7.14% on Tuesday.
“Bond investors are expecting the economic recovery to continue, but at a moderate pace,” Leuzzi said.
In the long run, such a scenario could propel stock prices upward, said Mary Farrell, market analyst with PaineWebber Group Inc. “If you can look beyond the short-term pain of higher taxes and restrained economic growth, this plan has the potential to bolster business investment, profits and jobs down the line.”
Farrell said Tuesday’s stock market repudiation of the plan Clinton outlined in his address the previous night reflected, in part, the fact that “taxes will go up the most for people who tend to be stock market investors.”
As a result, she said, Tuesday’s stock market tumble “was less a verdict on the plan’s impact on the economy than a verdict on the plan’s impact on wealthy investors.”
But David M. Jones, chief economist at Aubrey G. Lanston & Co., said the stock market’s plunge Tuesday signaled “a fundamental shift in the market’s tone”--and that the predominant direction from now on will be down.
In Jones’ view, Clinton has unmasked himself as a friend of big government and an enemy of big business. “It’s not just the tax increases that are bothering Wall Street,” Jones said. “It’s the anti-corporate attitude,” which he said was evidenced by Clinton’s attack last week on drug company pricing.
Growing unease in investment circles about the President’s intentions was best reflected in a memo that the influential investment banking firm Goldman, Sachs & Co.--until recently home to Robert E. Rubin, now chairman of Clinton’s National Economic Council--issued to clients Tuesday.
“If public vilification of the corporate sector is to be part and parcel of this Administration’s policy, the implication for share prices is not good,” the Goldman memo said. The firm recommended that investors trim the percentage of stock holdings in their portfolios to 55% from 70%.
Smith Barney’s Raftery took a more bullish posture.
“Tuesday’s drop had all the earmarks of a bull market selloff, rather than the initial phase of a bear market,” he said, arguing that the market has been overextended and in need of a correction in recent weeks.
Among stock groups, pharmaceutical and health care stocks continued to suffer Wednesday on fears of government price controls and loss of special tax breaks. Analyst Richard Vietor of Merrill Lynch called investments in most U.S. drug stocks “dead money.” Merck & Co. fell 3/8 to close at 37 1/2, and Pfizer Inc. lost 5/8 to close at 59 1/2.
Transportation stocks were clobbered again on fears of Clinton’s energy tax, with AMR Corp., the parent of American Airlines, losing 1 1/8 to finish at 59 5/8.
Intel Corp., a big loser Tuesday, bounced back 2 5/8 to finish at 108 1/2.
Currency
The dollar settled mostly lower on world markets for the second day in a row as concerns over Clinton’s economic package persisted.
The greenback fell in New York to 1.625 German marks and 119.65 Japanese yen, down from 1.629 marks and 119.93 yen on Tuesday.
The British pound fell to $1.446 from Tuesday’s $1.450.
Commodities
Gold for February delivery dropped $2 to $331 a troy ounce, and March silver tumbled 5.9 cents to $3.653 a troy ounce.
Elsewhere, oil prices extended Tuesday’s losses on the New York Mercantile Exchange amid skepticism about OPEC’s plan to cut crude production and news that China will open sizable inland areas for foreign oil exploration and development.
Light, sweet crude oil for March delivery fell 20 cents to $19.33 a barrel.
Market Roundup, D6
