FINANCIAL MARKETS : Stocks Catch Frugal Mood; Dow Off 1.12
Market Overview * An unexpected decline in consumer confidence helped send most stocks lower Tuesday, but a heavy early selloff reversed later in the day, keeping losses to a minimum.
Mexican stocks hit a new high in anticipation of Telmex’s earnings.
* Long-term interest rates eased on the surprising plunge in consumer confidence and on solid demand at the government’s auction of new two-year notes.
Stocks
The brightest spot in the market was the airline industry, which lifted the Dow Jones transportation average to a new high.
But the broad market was weak. Early on, the Dow industrials were off nearly 20 points from Monday’s record high. By the close, however, the Dow’s loss was cut to just 1.12 points, at 3,672.49.
Big Board volume was active at 284.53 million shares. Losing stocks topped winners by about 5 to 4 in the final tally.
The Conference Board, a business research group, said its consumer confidence index fell to 59.4 this month from 63.8 in September. Analysts had been expecting to see confidence rise, but the survey found consumers’ buying plans generally weak, except for cars.
The fall in confidence spooked some investors, already on edge because of heavy profit taking in smaller stocks over the past week.
“We’re staggering around here, with profit taking appearing as soon as the profits seem to be in place,” said Robert Stovall, president of Stovall-Twenty-First Advisers in New York.
“The market just seems a little tired. . . . After the run-up we’ve had, it’s not unusual that the market should pause and rest for a while, back off a touch,” said Andrew M. Brooks, head of equity trading at T. Rowe Price.
Traders noted that late in the day, the effect of the confidence report wore off as buyers again began to snap up industrial stocks and other potential beneficiaries of faster economic growth.
Among the market highlights:
* The Dow transport average climbed 19.44 points to a new high of 1,697.15, surpassing the old record set April 16. Analysts said transportation stocks were helped by the recent slide in oil prices and by indications that travel may pick up this fall.
Among airlines, American Airlines’ parent, AMR, rose 1 7/8 to 70, Delta Air Lines gained 1 1/2 to 57 5/8 and United Airlines’ parent, UAL, climbed 3 3/8 to 146 5/8.
* Industrial issues were boosted by USX-U.S. Steel’s better than expected quarterly earnings report. USX-U.S. Steel soared 2 1/2 to 38 1/8, Bethlehem Steel rose 1 to 17 3/8, Nucor gained 1 to 55 3/8 and Inland Steel jumped 1 1/2 to 32 7/8.
* Also in the industrial group, Caterpillar rose 1 1/4 to 91, Georgia Pacific was up 2 to 66 5/8, Ford rose 1 to 59 3/4 and Air Products & Chemicals soared 1 5/8 to 41. But profit takers hit Alcoa, off 1 1/8 to 69 5/8, and Kodak, off 1 1/8 to 57 7/8.
* Among technology companies, IBM gained 1 3/8 to 46 1/4 after reporting a loss of 12 cents a share for the third quarter, lower than expected. Data General sank 1 3/8 to 9 1/4 after reporting a $37.2-million quarterly loss.
Investors also were sellers of BMC Software after it reported weak revenue in its European markets. The stock fell 5 3/4 to 51 1/4.
* Among Southland issues, Day Runner stumbled 2 1/2 to 10 1/2 after reporting lower quarterly earnings. But Carl Karcher jumped 3/4 to 9 after Salomon Bros. rated the fast-food stock a “buy.”
Another Southland issue, National Health Labs, sank 2 3/8 to 13 1/8 after the company forecast lower earnings stemming from Medicare objections to prices of two of National Health’s lab tests.
Stocks were also mostly lower overseas. In Frankfurt, the DAX average dropped 15.67 points to 2,058.72, while London’s FTSE-100 index closed at 3,165.3, off 19.5.
In Tokyo, the Nikkei average fell 285.73 points to 20,023.60.
But in Mexico City, the Bolsa index surged 24.42 points to a record 2,029.06, anticipating Telmex’s earnings report. After the market closed, Telmex said nine-month earnings were up 7.5% after adjusting for inflation.
Credit
Bond yields rose slightly early in the day amid nervousness lingering from the sharp jump in yields in the previous three sessions.
But buyers emerged once the consumer confidence report was released, suggesting less robust economic growth.
By the close, the yield on the Treasury’s key long bond eased to 5.98% from 6% on Monday.
The bond market got another lift with the afternoon release of the Johnson-Redbook weekly report on retail sales, which showed economic activity in mid-October weakening from September.
News of economic sluggishness generally makes bonds more attractive to investors, because it means inflation is less likely.
The other main source of fuel for bonds was the first leg of the Treasury’s monthly note auction. The Treasury sold $16.5 billion in two-year notes at a high yield of 3.94%, the same as the last auction Sept. 21 and about as expected.
Other Markets
The dollar generally was hurt by the news of falling U.S. consumer confidence, but it gained on the Canadian dollar after Canadians overwhelmingly voted the Conservatives out of power.
In New York, the dollar was quoted at 108.20 Japanese yen, down from 108.58 on Monday. It rose to 1.681 German marks, up from 1.675.
Meanwhile, on the New York Comex, gold for current delivery settled at $369.20 an ounce, off 20 cents from Monday.
Light, sweet crude oil for December rose 3 cents to $17.54 a barrel on the New York Merc.
