FINANCIAL MARKETS : Merck, IBM Help Clip Dow 16.48
Market Overview
Highlights of Wednesday’s market activity, compiled from Times staff and wire reports:
* Despite some good news on the economy, the stock market ended broadly lower, weighed down by renewed selling in drug issues and in shares of IBM Corp.
* Long-term bond yields rose, while the dollar soared against the Japanese yen, reversing its recent decline to all-time lows.
Stocks
The Dow Jones industrials were up nearly 20 points early in the day, before selling in drug stocks began in earnest.
The drug group, which has suffered repeated blows of bad news in recent months, was battered anew by Merck & Co.’s announcement that its earnings could rise as little as 11% this year. The company, which blamed its troubles on increasing competition in the health care arena, also announced a work force reduction program.
Merck stock traded as low as 33 1/4 before closing down 2 1/4 to 34 3/4. The stock has now plunged 39% from its peak of 56 5/8 last year.
Merck’s fall, and a selloff in IBM stock, left the Dow off 16.48 points for the day, to 3,445.38. IBM was slammed on investor disappointment over the apparent choice of RJR Nabisco’s Louis V. Jr. Gerstner as chief executive.
The broad market didn’t fare so badly: Losers topped winners on the New York Stock Exchange by just 10 to 9. Volume was strong at 274.93 million shares.
Many industrial stocks responded favorably to the Commerce Department’s report of stronger-than-expected February durable goods orders. “It was more evidence that the economy is slowly but surely grinding upward,” said Alfred Goldman, analyst at A. G. Edwards & Sons Inc. in St. Louis.
Among the market highlights:
* Drug stocks following Merck lower included Schering-Plough, down 3 at 56 1/2; Pfizer, off 2 to 57 5/8; Johnson & Johnson, down 1 1/8 to 39 1/2; Lilly, off 1 1/8 to 46 1/8, and Amgen, which fell 1 1/4 to 34 3/4.
* Many other health issues also sank. Medtronic dropped 3 1/2 to 69 3/4, U.S. Surgical slid 2 1/2 to 54 3/8, United HealthCare lost 1 1/4 to 45 5/8 and Biogen eased 3/4 to 27 1/4.
* IBM closed at 51 1/8, off 3 1/8 in heavy trading. The Wall Street Journal reported that the company’s directors have settled on Gerstner, chief of RJR Nabisco, as IBM’s next CEO.
Investors unhappy with the choice of Gerstner also may have been unnerved by worries about still-declining mainframe computer sales. IBM’s mainframe rival, Amdahl, disclosed that it will report a large first-quarter loss because of what it termed disappointing sales and intense price competition. Amdahl shares plunged 1 1/2 to 6 1/2.
* Despite IBM’s woes, many technology stocks rallied from a recent selloff. Intel rose 1 3/4 to 114 1/4, Compaq added 1 to 48 3/4, Microsoft jumped 3 1/8 to 86 1/4, Newbridge Networks soared 2 3/4 to 58 3/4 and Oracle Systems gained 7/8 to 35 3/4. Oracle reported sharply higher quarterly earnings.
* Among industrial issues that may have been helped by the durable goods report, Litton Industries surged 1 3/8 to 53 7/8, Cummins Engine rose 2 to 95 1/2, Eaton jumped 1 3/4 to 86 3/8, General Electric advanced 1 3/4 to 89 7/8 and Kennametal leaped 1 1/4 to 33 1/4.
Also, National Steel closed at 14 7/8 after its initial offering of 10 million common shares at 14.
* On the downside, Carnival Cruise plummeted 4 1/4 to 33 1/8 after reporting quarterly earnings below expectations, and warning of an “uncertain” outlook.
Elsewhere, Furon Co. tumbled 2 3/8 to 15 5/8 after the Laguna Niguel-based industrial products firm said its first-quarter earnings probably won’t match year-ago results.
Overseas, Tokyo’s Nikkei index eased 40.93 points to 18,450.69.
In Frankfurt, shares reversed the downward trend of the last two days and pushed the DAX index up 11.01 points to 1,659.45. In London, the FTSE-100 index slipped 0.5 point to 2,860.6.
In Mexico City, the Bolsa index shot up 32.99 points to 1,702.10 on news of a third consecutive weekly drop in interest rates.
Credit
Long-term bond yields were pushed up by the stronger-than-expected durable goods report, which reignited worries about faster economic growth and faster inflation. News of improving new-car sales also fanned expectations for a healthier economy.
The yield on the 30-year Treasury bond closed at 6.82%, up from 6.76% Tuesday.
Short-term yields were flat to lower, however. It helped that the Treasury experienced strong demand for its auction of $15.26 billion in two-year notes: The highest yield accepted was 3.92%.
The Treasury will sell new five-year notes today.
The federal funds rate, the interest on overnight loans between banks, was unchanged from late Tuesday at 2.938%.
Other Markets
The dollar rebounded powerfully against the Japanese yen, closing at 117.65 yen in New York from Tuesday’s 115.95.
The dollar had reached a new postwar low of 115.10 yen early Tuesday. By Wednesday, however, news of a leap in U.S. durable goods orders sparked heavy dollar buying.
The dollar has been falling against the yen in recent months, on expectations that Western allies would continue to pressure Japan to strengthen its currency, to help reduce Japan’s huge trade surplus.
But on Wednesday, dealers reconsidered the relationship between the yen and the dollar, given the expanding U.S. economy and still-weak Japanese economy.
Elsewhere, against the German mark, the dollar closed at 1.638 in New York, up from 1.630.
Meanwhile, light, sweet crude oil for May rose 21 cents to $20.24 a barrel on the New York Merc.
On New York’s Commodity Exchange, gold prices rose after falling overseas. Gold for current delivery closed at $332.50 an ounce, up 60 cents, while silver rose 3.2 cents to $3.68.
