FINANCIAL MARKETS : Stock Drop Is Led by Airline, Tech Issues
Market Overview
* Stocks closed broadly lower, depressed by profit taking in airline, technology, utility and financial issues.
* Long-term bond yields eased again as short-term bill rates fell to the lowest levels since October. Meanwhile, the muni bond market prepared for a massive $3-billion offering of notes by California.
* The dollar dropped to another postwar low against the Japanese yen, despite remarks from Japanese government leaders designed to slow the currency’s rally.
Stocks
The market failed to continue the Dow industrials’ rally of last week, which ended with a record high of 3,478.61 on the blue chip index Friday.
Sentiment on Monday was decidedly pessimistic, partly weighed down by some disappointing corporate earnings reports and by another fare war that clipped airline stocks. Also, a plunge in shares of the computer chip giant Intel hurt high-tech stocks in general.
By the close, the Dow was down 11.62 points to 3,466.99, and losers outnumbered winners 12 to 8 on the New York Stock Exchange. But volume slowed to 244.71 million shares from 305 million Friday.
Some analysts noted that the market was ripe for profit taking, especially in the industrial, transport and utility stocks that hit new highs on Friday.
Among Monday’s highlights:
* Airline stocks tumbled after Northwest Airlines announced fare cuts. AMR, parent of American Airlines, fell 2 to 66 5/8; Delta Air Lines dropped 1 1/8 to 56 3/4, and United Airlines’ parent, UAL, fell 3 7/8 to 141 7/8.
* Intel slumped 12 1/4 to 97 3/4 on NASDAQ after Advanced Micro Devices won court clearance to begin shipping clones of Intel’s popular 486 chip. AMD, meanwhile, rocketed 3 7/8 to 28.
Tech stocks overall weakened: Dell Computer fell 1 3/8 to 30 3/8; Compaq lost 1 1/8 to 49 3/4; Cabletron Systems slumped 1 7/8 to 87 1/8; PowerSoft sank 2 3/4 to 31, and Sybase slid 2 to 53.
* A disappointing quarterly earnings report clipped Chrysler 1 3/4 to 42. In sympathy, Ford fell 7/8 to 54 1/4, and GM dropped 7/8 to 39 5/8.
Also, Chase Manhattan plunged 2 3/8 to 34 1/2 after it announced plans to sell $750 million in new common stock. Other bank stocks also dropped amid profit taking from their latest run. Mellon lost 1 3/4 to 61 5/8; NationsBank eased 1 to 54 3/4; Citicorp fell 7/8 to 29 1/8, and BancOne dropped 1 3/8 to 58 1/8.
* Utility stocks also fell on profit taking. The Dow utility index sank 2.31 points, or 0.9%, to 245.37. Losers included Detroit Edison, down 5/8 to 35 7/8; Consolidated Natural Gas, off 5/8 to 49, and Peoples Energy, which fell 7/8 to 30 3/4.
* Drug stocks were a bright spot, attempting to rebound from a 15-month-long drubbing as some major companies reported earnings that met depressed expectations. Merck jumped 1 7/8 to 35 7/8; Warner-Lambert leaped 2 to 72 5/8, and Schering-Plough soared 2 3/8 to 62 1/4.
Overseas, London’s FTSE-100 index added 5.6 points to 2,830.0, and Frankfurt’s DAX average rose 14.45 points to 1,693.30.
In Tokyo, the Nikkei average closed at 20,112.34, down 185.52 points.
Credit
The bond market rally resumed, driving the yield on the Treasury’s 30-year bond to 6.72% from Friday’s 6.75%.
A continuing slide in short-term T-bill rates is boosting expectations that the Federal Reserve will soon officially ease credit again, to help what some economists believe is a stalling economy. On Monday, rates on newly auctioned three- and six-month T-bill hit their lowest levels since October.
Meanwhile, traders readied for California’s planned sale today of $3 billion in tax-free notes, the proceeds from which will help bridge the state’s short-term revenue needs. The notes will mature on June 24.
In a unique arrangement to win top-tier credit ratings on the notes, the state agreed to sell more notes in June to help pay maturing principal and interest on the notes sold today. The arrangement adds an extra measure of security for investors worried about the state’s fiscal condition.
Annualized yields on the notes, free of federal and state income tax, are expected to range between 2.50% and 2.60%.
Elsewhere, in a case of unfortunate timing, the city of Waco, Texas, went to market to sell $32.6 million in general-obligation bonds Monday--even as the tragedy at the nearby Branch Davidian compound unfolded.
Other Markets
The yen began its advance overnight in Tokyo as a follow-through to Friday’s gains in New York. The Japanese currency had soared on Friday after President Clinton, at a news conference in Washington with Japanese Prime Minister Kiichi Miyazawa, said he welcomed a stronger yen.
By the close in New York the dollar had reached a new postwar low of 111.10 yen, down from 112.30 yen late Friday. Early today in Tokyo the dollar was trading at 110.80 yen.
The yen continued to gain even though Miyazawa warned on Monday that it was appreciating too rapidly and that Japan’s central bank should try to curb the currency’s rise. Some traders now see the possibility that the dollar could fall to 100 yen in this decline.
The dollar also fell against other currencies, dropping to 1.597 German marks from 1.617 Friday.
In commodities trading, light, sweet crude oil for May fell 15 cents on the New York Merc to $19.99 a barrel.
Near-term gold gained $1.30 to settle at $340.30 on New York’s Comex. Silver eased 1.3 cents to $3.91.
Market Roundup, D8
