FINANCIAL MARKETS : Small Firms Lead Decline; Dow Loses 6.99
Market Overview
Stocks fell on Tuesday, with smaller companies’ shares retreating significantly amid fears that the market could not sustain recent highs and bigger issues following the downward trend.
Treasury yields declined slightly, although unexpectedly strong housing construction figures triggered a rise in the morning.
Stocks
Blue-chip stocks were mostly higher until mid-afternoon--at one point even passing the average’s record closing level--but smaller issues traded in consistently negative territory.
The Dow Jones average fell 6.99 points to 3,635.32 on Big Board volume of 304.40 million shares. In the broader market, declining issues outnumbered advancing ones by about 3 to 2 on the New York Stock Exchange.
The Nasdaq composite index, one of the best-known gauges of small-company stocks, ended 14.20 points off, or about 1.8%, at 768.71. That eventually pulled down the entire market, said Mary Farrell, an investment strategist at Paine Webber.
Still, analysts weren’t particularly worried by the selling, which came on the sixth anniversary of the 1987 stock market crash.
“The decline reflects the fact that small-cap stocks had moved up so rapidly recently,” she said.
Monday ended a string of five consecutive all-time highs for the Nasdaq. Among the major market indicators last week, only the Dow did not reach record levels.
Indeed, the stocks that were hit the hardest Tuesday--banks and brokerages, as well as computer networking, communication and semiconductor companies--were issues that recently had climbed the most, analysts said.
“Investors were focused on trying to cash in on a good profit,” said Eugene Peroni, director of technical research at Janney Montgomery Scott.
There was a negative bias early in the day, when bonds initially tumbled following better-than-expected data on the economy. The Commerce Department said construction of new houses and apartments rose 2.8% in September to the highest level in more than 3 1/2 years.
And stocks received little encouragement from abroad. In Frankfurt, the DAX average declined 6.56 points to 2,026.76 after setting records two days in a row. London’s Financial Times 100-share average closed 8 points lower at 3,129.6; Tokyo’s 225-share Nikkei average ended 2.30 points off, at 20,069.91.
Among the market highlights:
* Citicorp headed the NYSE most-active list, rising 1/8 to 35 3/4, after it announced better-than-expected profits for the third quarter.
* Unisys fell 1/8 to 11 3/4 after it announced third-quarter profits of 33 cents a share, versus 23 cents a share in the equivalent period last year.
* Philip Morris also traded actively, but fell 1 1/8 to 52 3/4 after it posted lower earnings for the three-month period and said fourth-quarter profit comparisons would also be unfavorable.
* Caterpillar rose 1 5/8 to 82 1/2; Alcoa gained 3/4 to 68 3/4; United Airlines gained 1 5/8 to 147; Sears, Roebuck edged up 1/2 to 56 3/8.
* Iwerks Entertainment soared to 33 1/2 from its initial public offering of $18 a share, as investors scooped up the newest of the emerging “interactive” stocks.
* Spectrum Information Technologies again dominated activity on the Nasdaq, falling 1 5/8 to 9 1/2 one day after it named former Apple chief John Sculley to head the company. Spectrum shares had jumped 46% on Monday.
* Among the losers on the Nasdaq: Microsoft fell 2 3/4 to 80 1/4; Oracle sank 2 3/4 to 61 1/2; Sybase dropped 3 1/4 to 69 3/4.
Other Markets
The bond market’s late recovery was aided by strong buying on the part of municipalities, technically driven trading strategies and reassuring words from Federal Reserve policy makers.
By day’s end, the 30-year bond yield had fallen to 5.84% from 5.85% late Monday.
Its price, which moves in the opposite direction, rose 5/32 point, or $1.56 cents per $1,000 in face value.
Most short-term and intermediate-term Treasury securities’ prices were 1/32 point higher, the Telerate Inc. financial information service reported.
The Commerce Department’s strong housing starts raised investor fears that an improving economy could aggravate inflation pressures. That prompted selling mainly of long-term securities, whose value over time is most vulnerable to inflation.
After the initial selling, the bond market apparently got a lift from cities’ and states’ buying. They use Treasury securities to store the proceeds from municipal bond sales, Seto said.
The federal funds rate, the interest on overnight loans between banks, was quoted at 2.875%, down from 3% late Monday.
In other markets:
* On the New York Comex, gold closed at $369.10 an ounce, up 80 cents from Monday. Silver closed at $4.412 an ounce, up half a cent.
* Light, sweet crude oil for November delivery fell 7 cents to $18.06 a barrel.
* The dollar finished little changed against most other major currencies Tuesday, as traders adjusted to the greenback’s rise in recent days and awaited further news as to whether European countries would reduce interest rates.
Market Roundup, D8
