Turmoil Over Budget Sends Dow Down 9.22 : Market Overview
Uncertainty over the fate of President Clinton’s budget package and higher interest rates dampened enthusiasm for stocks on Tuesday, pushing blue-chip share prices lower.
* The government’s plans to borrow an unexpectedly large amount next week at its quarterly refunding auctions pushed Treasury bond yields higher.
* Gold and silver futures prices accelerated their slide.
Stocks
Prices traded in a narrow range for most of the day as investors assumed a cautious stance ahead of congressional consideration of the budget package, expected this week.
Small stocks, however, performed well, led by strength in technology shares. The NASDAQ index reached a record high.
The Dow Jones industrial average fell 9.22 points to 3,552.05, on Big Board volume of 230.04 million shares, down from 253.11 million shares Tuesday. Advancing issues narrowly outnumbered declines on the New York Stock Exchange.
Prominent Democratic lawmakers have said they expect the budget package to pass, but the tally is expected to be close.
If the budget is not approved, bond prices could tumble, pushing interest rates higher and, possibly, stock prices lower, analysts said.
The market received little direction from abroad. Frankfurt’s 30-share DAX average ended up 17.13 points at 1,860.56 and Tokyo’s 225-share Nikkei finished 139.91 points higher at 20,497.55. In London, the Financial Times 100-share average closed at 2,941.3, down 3.7 points.
Among the market highlights:
* Lockheed tumbled 4 to 62 1/2 after the company told analysts it was cutting the number of F-16 fighter jets it plans to build next year. But analyst Peter Aseritis of First Boston Corp. said the market overreacted. Lockheed took the step merely to “smooth out” F-16 output for the next several years, he said. And although Lockheed will lose about $50 million in operating profit in 1994 from cutting F-16 production, the company should offset that with gains elsewhere, Aseritis said.
* Intel gained 2 to 55, getting a boost from a Merrill Lynch analyst who raised his 1993 earnings estimate for the computer microprocessor maker.
* Kmart climbed 1 1/8 to 21 3/4 on news that it was putting up the “for sale” sign on its Pay Less drugstores. It was the NYSE’s highest volume stock.
* Some banking stocks gained. BankAmerica was up 7/8 to 44 3/4, Chemical Bank rose 5/8 to 42 1/4 and Chase Manhattan was up 1/2 to 32 7/8.
* Two initial public stock offerings were among the most active NASDAQ issues. Reinsurance firm Mid Ocean closed at 28 1/2, up sharply from its offer price of 24 1/2. Best Power Technology, a manufacturer of power protection devices for computers and other equipment, rose to 18 from its initial price of 14 1/2.
Credit
The Treasury Department announced that it plans to borrow a record $38.5 billion next week.
The government said it will offer $16.5 billion in 3-year notes on Tuesday, $11 billion in 10-year notes on Wednesday and $11 billion in 30-year bonds on Thursday.
Carol A. Stone, senior economist and assistant vice president at Nomura Securities International Inc., said traders had anticipated a $9-million sale of long bonds.
“There was some wishful thinking, perhaps,” Stone said. “Now they have more product to sell. That puts a little downward pressure on the price.”
The government’s 30-year bond yield closed at 6.54%, up from Tuesday’s 6.51%. Its price, which moves in the opposite direction, was down 13/32 point, or $4.06 per $1,000 in face value.
The federal funds rate, the interest on overnight loans between banks, was 3%, down from 3.063% late Tuesday.
Other Markets
Gold prices fell in the United States, with gold for current delivery closing at $399.20 an ounce on the New York Commodity Exchange, off $4.20 from Tuesday’s close. Silver dropped to $5.252 an ounce, down 1.17 cents from Tuesday’s close.
Gold has fallen $7.80 since Friday, when it reached a 34-month high on buying linked to the instability of European currency exchange rates. Order was restored to the European monetary system over the weekend.
In energy trading on the New York Mercantile Exchange, light sweet crude oil for September delivery fell 5 cents to $17.80 a barrel.
The dollar edged higher against most other major currencies in the absence of any news that could influence trading.
In New York, the dollar closed at 104.85 Japanese yen and 1.708 German marks, up from Tuesday’s 104.35 yen and 1.707 marks respectively.
Market Roundup, D6
