Wal-Mart Slides, but Dow Gains : Market Overview
Stocks closed mixed, as another decline in many consumer issues--especially retailers--was offset by a rally in industrial names. The Dow Jones industrials rose 11.61 points to 3,455.64.
* Treasury bond yields declined after the Federal Reserve dipped into the market and bought about $4 billion of long-term bonds to boost bank reserves.
* Precious metals surged on fears about South African unrest.
Stocks
Retail stocks were the day’s big story, as premier growth stock Wal-Mart was hammered on worries about slower sales growth.
Wal-Mart shares closed off 1 3/4 to 27 1/4 after trading as low as 25 3/4, as a huge 14 million shares changed hands. The stock was as high as 34 1/8 in March.
The retailer’s chief financial officer, Paul Carter, told a meeting of analysts that Wal-Mart would be satisfied with 7% to 8% same-store sales growth for 1993.
Though some analysts argued that the sales targets were no surprise, others suggested that Wall Street overall had expected a 10% sales rise this year.
“I guess people expect upbeat news from Wal-Mart, so any bad news is cataclysmic,” said Joseph C. Ronning, an analyst at Brown Bros. Harriman.
Some analysts also attributed the sudden selling wave to investor concerns that Wal-Mart’s Sam’s warehouse division is faltering.
A story in Wednesday’s Women’s Wear Daily questioned whether “the novelty” is wearing off for the warehouse clubs, among them Sam’s. As noted in the trade newspaper, comparable-store sales at warehouse clubs fell off in February and March, not only because of bad weather but apparently also to the merchandise.
Experts also suggested that Wal-Mart now is suffering from the same worries about slow consumer spending that have hampered many consumer stocks in recent months.
What’s more, the Clinton Administration on Wednesday revived talk of a “value-added tax” that would raise prices on virtually all goods--potentially crippling retail sales, at least for a time.
Other retailers hit hard on Wednesday included Home Depot, down 1 7/8 to 42 3/4; Penney, off 3 5/8 to 85 1/2; May Department Stores, which fell 2 3/8 to 75 3/4; Dayton-Hudson, down 1 3/4 to 77 1/4, and Price Co., off 1 1/4 to 29 1/2.
The broad market, however, was supported by renewed buying of industrial issues. As investors have abandoned health care and consumer stocks over the last year, much of that money has flowed to industrial issues whose fortunes are expected to improve even in a slow-growing economy.
Overall, winners topped losers by 10 to 9 on the New York Stock Exchange, on volume of 257.3 million shares.
Among the market highlights:
* Many health care, food and other consumer stocks followed retailers lower. Kellogg lost 1 to 57 7/8, McDonald’s slid 1 1/8 to 49 3/4, Ralston Purina fell 1 1/4 to 47 1/4, Gillette lost 7/8 to 56, GranCare plunged 1 5/8 to 17, NovaCare dropped 3 3/8 to 12, and hospital giant National Medical Enterprises tumbled 1 1/8 to 7 1/8.
Also, RJR Nabisco fell 1/4 to 5 3/4. On Tuesday, the company slashed the total dividend it will pay to investors after it issues separate food and tobacco stocks. Citing an impending cigarette price war, RJR also said it will delay any dividend on the tobacco stock.
* Brokerage stocks helped buoy the market, advancing further after soaring Tuesday when Merrill Lynch reported surprisingly strong earnings. Merrill, up 5 1/8 Tuesday, added 1/4 to 76 7/8. Also, Morgan Stanley gained 1 1/4 to 66 1/8, Primerica rose 7/8 to 49 7/8, and Dean Witter was up 1 to 39 1/8.
* Industrial stocks attracting buying included Allied-Signal, up 3/4 to 67 3/4; GE, up 1 1/4 to 94 3/8; Goodyear, up 1 7/8 to 80; 3M Co., up 2 5/8 to 113 3/8; Illinois Tool, up 1 1/4 to 75 1/2, and railroad CSX, up 1 3/4 to 74 1/4.
But chemical giant Goodrich fell 1 1/8 to 46 7/8 after reporting a first-quarter loss of 38 cents a share. Analysts expected a small profit.
* The NASDAQ market was hurt by big losses in Networth Inc. and State Street Boston Corp.
Networth, a computer networker that was among last year’s hottest new stock issues, plummeted 8 to 10 3/4 after it said that difficulty in getting supplies and higher operating expenses led to an unexpected third-quarter loss.
Meanwhile, financial services provider State Street tumbled 7 5/8 to 35 1/8 after analysts saw a trend rising expenses in the firm’s first-quarter earnings report.
Overseas, London’s FTSE-100 stock index eased 4.7 points to 2,842.1, while Frankfurt’s DAX index added 1.39 points to 1,672.44.
In Tokyo, profit taking stalled the recent rally. The Nikkei index fell 206.91 points to 20,533.38.
Credit
The Federal Reserve gave a much-awaited nudge to the Treasury market by announcing that it will purchase a wide range of bonds this week to help boost banking system reserves.
The yield on the Treasury’s 30-year bond fell to 6.75% from 6.78% Tuesday, and shorter-term yields also declined. The 30-year bond yield is once again approaching its modern-day low of 6.66% reached early in March.
The Fed’s bond purchase, announced shortly after midday, was estimated at between $3.5 billion and $4 billion. Fed purchases are significant because the net effect is to make bonds more scarce, thus driving down their yields.
The Fed’s need to replenish banking system reserves typically increases this time of year as taxpayers withdraw money from their bank accounts to pay federal and state income taxes.
Other Markets
Platinum led precious metal futures prices sharply higher as South African strife sparked fears of supply disruptions.
A proposed increase in Western aid to Russia may also have triggered buying amid perceptions that Russia would need to sell less of its precious metal stocks to gain hard currency in the near future.
On the New York Mercantile Exchange, platinum for July delivery surged $6.90 to $369.30 an ounce.
On New York’s Commodity Exchange, April gold rose $2 to $339.70 an ounce; May silver climbed 6.8 cents to $3.95.
In South Africa, millions of workers went on strike to protest the slaying of black leader Chris Hani. Four people were killed and hundreds wounded as blacks battled police.
Meanwhile, light, sweet crude oil for May delivery fell 6 cents on the New York Merc, to $20.40 a barrel.
In currency markets, the dollar advanced across the board in moderate trading that was driven mostly by technical factors.
This week’s meeting of the Group of Seven finance ministers in Tokyo is serving “as a background deterrent to selling the dollar,” particularly against the Japanese yen, said Randolph Donney, analyst at Pegasus Econometric Group.
In New York, the dollar settled at 113.88 yen, up from 113.40 on Tuesday. The dollar also rose to 1.595 German marks from 1.582.
Market Roundup, D6
