Dow Gains, but Broad Market Declines : Market Overview
A sharp selloff in drug, technology and energy stocks pushed most market indexes lower Thursday, but the Dow industrials managed to rise slightly.
* Long-term Treasury bond yields edged down to historic lows for a sixth straight session, although the bond market overall was flat.
* The dollar rose amid rumors of new turmoil in major European currencies. Oil prices inched up after Wednesday’s losses.
Stocks
Solid gains in a handful of blue-chips boosted the Dow industrials 8.38 points to close at 3,550.93, nearing the all-time high of 3,554.83 reached May 27.
But the broad market was lower, weighed down by heavy selling of health care and technology issues. Energy stocks also were weak, one day after oil prices plummeted.
“The Dow is up, but don’t be deceived. This is a down market today,” said Hugh Johnson, analyst at First Albany Corp.
On the New York Stock Exchange, losing issues edged gainers as volume retreated to 271.8 million shares.
On the NASDAQ market of mostly smaller stocks, meanwhile, the composite index dropped 3.80 points to 708.69, one day after setting a new high for the first time since February.
Analysts said some profit taking was natural given the market’s gains over the last six sessions. But they also noted a disturbing breakdown in some leading stock groups--specifically, the computer networking firms that have been high-fliers all year.
Among the market highlights:
* Synoptics Communications led the networking stocks lower, diving 6 1/4 to 31 3/4 after reporting quarterly earnings that disturbed some investors.
Although profit was up 192%, a slight decline in the company’s gross margin suggested that growth in the computer networking business may be slowing, some experts said.
Investors bailed out of networking stocks across the board. Cabletron Systems sank 6 3/4 to 101 1/4, Cisco Systems lost 4 to 52 1/4 and Wellfleet Communications dropped 2 7/8 to 50 1/2.
* Another tech casualty was Storage Technology, down 7 7/8 to 33 1/4. It reported an 80% drop in second-quarter earnings due to stiffer competition and weak overseas economies that pinched sales.
* Also in the tech field, Scitex plunged 9 5/8 to 28 3/8. The computer graphics firm projected lower quarterly results, blaming the economic slowdown in Europe.
* Drug stocks tumbled yet again after brokerage Smith Barney, Harris Upham warned that a deeper selloff of the ailing group may lie ahead. Merck fell 1 to 33 3/4, Bristol Myers slid 2 1/8 to 58, Pfizer gave up 1 1/2 to 63 1/4 and Immunex dropped 2 1/4 to 25.
Also, surgical device maker U.S. Surgical, once one of the most popular health care stocks, fell 3 5/8 to 24 after posting a larger than expected quarterly loss.
* Energy stocks gave ground in the wake of the big slide in oil prices Wednesday. Mobil fell 1 3/8 to 69 7/8, Arco dropped 1 1/4 to 111 1/2, Phillips lost 1 to 28 1/2 and Amoco sank 1 1/8 to 53 3/4.
* On the plus side, some industrial issues rose further as investors bet on continuing demand for Rust Belt products. 3M Co. jumped 2 1/4 to 110, machinery maker Dover Corp. leaped 1 5/8 to 48 1/2, Cooper Tire gained 1 5/8 to 25 1/4, Varity added 1 to 31 3/4 and Superior Industries surged 3 1/4 to 58 1/4.
But industrial parts distributor W.W. Grainger slumped 5 1/8 to 54 1/8. It reported second-quarter earnings below expectations.
Overseas, Tokyo’s Nikkei index finished up 18.91 points at 20,158.02.
In Frankfurt, the DAX average closed down 3.89 points at 1,807.66. In London, the FTSE-100 index eased 0.6 point to 2,831.7.
Credit
The easing of inflation tensions that drove Treasury bond yields sharply lower Wednesday continued as oil prices failed to rebound much from three-year lows.
The Treasury’s main 30-year bond yield slipped to another historic low of 6.55%, from 6.56% on Wednesday.
Kevin Logan, chief U.S. economist at Swiss Bank Corp., said bond market participants are now paying attention to the oil price declines of recent months after being distracted by rises in other commodities prices.
“Three-year lows in oil is the kind of thing that headlines are made of,” Logan said. Low oil prices suggest that the trend toward minimal U.S. inflation can continue.
However, the bond market’s momentum lost steam due to a decline in purchases by cities and states using Treasury bonds to refund higher-yielding debt.
Numerous towns and cities recently have rushed out new bonds at low interest rates, with the idea of using the proceeds to redeem higher-yielding debt. Many have been storing the proceeds by buying Treasury securities until the expiration of clauses in existing debt issues that prohibit them from paying back the debt before its maturity date.
Such buying gave a lift to T-bond prices Wednesday but was not as evident Thursday, participants said.
Other Markets
The dollar thrived on the rumors and realities of currency intervention and uncertainty in Europe.
There were rumors in the morning, ultimately unfounded, that the Danish government was going to devalue the krone.
That set the stage for extreme selling of the currency, said Amy Smith, a market strategist for the IDEA economic consulting group.
That in turn gave rise to unfounded rumors that the German Bundesbank was going to lower its repo rate, or the rate for repurchasing money market securities as a way to supply banks short of cash with fresh money.
“That was the rumor that sent the dollar higher,” Smith said. “There’s always attraction for the dollar whenever there is chaos in the world.”
The dollar closed at 108.01 Japanese yen in New York, up from 107.10 yen Wednesday. It rose to 1.721 German marks from 1.715.
In the oil market, prices recovered somewhat from Wednesday’s 64-cent-a-barrel plunge, which was caused by growing expectations of a supply glut. On the New York Mercantile Exchange, light, sweet crude oil for August delivery settled 18 cents higher at $17.67 a barrel.
Elsewhere, gold prices rose. On New York’s Comex, gold for current delivery settled at $393.40 an ounce, up $2.50. Silver traded at $5.05 an ounce, up from $4.94.
Market Roundup, D8
