FINANCIAL MARKETS : Health Stocks Slump Again; Dow Inches Up : Market Overview
Stocks closed mixed in moderate trading, weighed down by a broad plunge in drug stocks after two major firms forecast lower first-quarter earnings.
* Treasury bond yields pulled back, retracing some of their recent rise, after the government reported a smaller than expected gain in housing starts. Also, bonds were helped by Federal Reserve purchases of securities.
Stocks
With first-quarter earnings reports just a few weeks away, three well-known companies provided a preview Tuesday--and the news wasn’t good.
Two big drug companies--Eli Lilly and Marion Merrell Dow--said earnings would be lower than expected because of “competitive pressures.”
Also, Chemical Waste Management, a hazardous-waste treatment firm, projected a potential drop in first-quarter results, in part because of inclement weather in some regions, it said.
Analysts said the earnings previews didn’t help market sentiment, but that investors did not appear worried that the announcements foreshadow lousy quarterly results in general.
The broad market drifted for much of the day, and the Dow industrials finished up just 0.54 of a point to 3,442.95.
On the New York Stock Exchange, declining and advancing issues were about even. Volume remain subdued in the wake of the eastern blizzard, reaching just 218.82 million shares.
Traders said many investors were much more interested in the potential market reaction to today’s government release of the February consumer price index.
Last Friday, a jump in the wholesale price index for February sparked inflation fears, causing a selloff in bonds that triggered widespread profit taking in stocks.
Among Tuesday’s highlights:
* Drug stocks suffered yet another big selloff after Lilly and Marion Merrell projected disappointing earnings. Analysts were particularly concerned because both firms admitted to being hurt by demands for drug discounts by health care providers.
Because the Clinton Administration has attacked drug companies for making allegedly excessive profits, some Wall Streeters worry that the Lilly and Marion Merrell announcements could signal just the beginning of an assault on drug company profit margins.
Lilly shares slumped 2 to 48 3/4, and Marion Merrell plunged 4 to 18 7/8. Among other drug firms, Merck lost 7/8 to 37 3/4, Bristol-Myers Squibb slid 1 1/2 to 56 1/8, Pfizer tumbled 2 1/8 to 60, Amgen fell 1 1/2 to 35, and Syntex eased 1/2 to 18 3/4.
* Dow Chemical, a big stakeholder in Marion Merrell, lost 2 1/8 to 53 3/4. Chemical stocks in general were weak: Goodrich lost 3/4 to 46 1/8, and Monsanto fell 3/4 to 52 3/4.
* Elsewhere, Chemical Waste Management plunged 2 1/8 to 17 1/8 after its earnings preview. The firm said first quarter results will be in the “range of 10 cents to 15 cents” a share, versus 15 cents a year ago. Besides weather problems, the firm said it is being hurt by a decline in waste volumes from some environmental cleanup sites.
Chemical’s majority owner, Waste Management, also was slammed. It lost 2 1/8 to 35 3/4.
* Among Southland issues, Wyle Labs plummeted 2 1/4 to 17 3/4. Prudential Securities lowered its rating of the stock to hold , citing competitive pressures on Wyle’s computer chip distribution unit.
* On the plus side, some bank stocks saw renewed buying on optimism about 1993 earnings. Citicorp rose 3/4 to 29 1/2, PNC Financial added 3/4 to 33 1/8, and Wells Fargo gained 1/2 to 108 1/2.
* Several new stock issues made their debuts. Ethan Allen, a leading furniture retailer, was sold at 18 apiece and closed at 20 1/4. Also, software firm Wall Data was sold at 20 a share and closed at 22 3/4, and Santa Ana-based retailer Pacific Sunwear offered its shares at 13 and closed at 15 3/4.
Overseas, London’s FTSE-100 index eased 3.1 points to 2,919.3, while Frankfurt’s DAX index slipped 4.74 points to 1,697.83.
In Tokyo, the Nikkei index’s seven-day rising streak was halted. It fell 117.88 points to 17,968.30.
Credit
Bond yields declined a bit, helped by the government’s report that February housing starts rebounded less than expected. That spurred new talk that the economy is slowing.
The 30-year Treasury bond yield closed at 6.87%, down from Monday’s 6.89%.
Interest rates had surged across the board late last week after a report on February wholesale prices hinted at higher inflation.
But Tuesday, some traders bought bonds on the expectation that today’s report on February consumer prices will dampen inflation worries again.
Traders were also cheered when the Federal Reserve entered the market Tuesday to buy securities, driving yields down.
The central bank was expected to enter the market later this month to replenish bank reserves depleted by corporate and individual income tax payments. So Tuesday’s buying was a surprise.
The fed funds rate, the rate on overnight loans between banks, fell to 2% from 3.125% Monday.
Other Markets
The dollar rose against most major currencies but fell against the Japanese yen on news that Japan’s trade surplus with the United States widened.
Japan’s trade surplus with the U.S. rose 19% to $4.37 billion in February, the 26th consecutive monthly rise.
In New York, the dollar closed at 117.00 Japanese yen, down from 118.65 Monday. But against the German mark the dollar closed at 1.664 versus 1.663 Monday.
Elsewhere, commodity markets calmed after Monday’s big gains. News of slower housing construction hammered lumber futures.
Spruce two-by-fours for May delivery dropped the permitted daily limit of $10 to $448.20 per 1,000 board feet on the Chicago Mercantile Exchange.
On New York’s Comex, near-term gold futures traded at $329.10 an ounce, off 20 cents. Silver slipped 0.6 cent to $3.65.
Light, sweet crude oil for April fell 3 cents to $20.13 a barrel on the New York Merc.
Market Roundup, D6
