Dow Falls 6.20 in Session of Profit Taking
Market Overview
* News of an unexpected surge in December retail sales cooled off a weeklong Treasury market rally Thursday, sending yields soaring and prices plunging by nearly a point.
* The rising bond rates and weakness in foreign markets pushed blue-chip stocks lower.
Credit
Bond market strategists said signs of economic strength gave investors an excuse to sell bonds and profit from the recent rally.
The Treasury’s main 30-year bond yield jumped to 6.25% from 6.18% on Wednesday. Its price, which moves in the opposite direction, tumbled 31/32 point, or $9.69 per $1,000 in face value. The Commerce Department said retail sales in December rose 0.8%, with store owners enjoying their biggest sales increase since before the 1990-91 recession. Economists had expected a rise of just 0.3%. For all of 1993, sales were up 6.2% from the previous year. It was the best showing since 1989.
Bond prices had soared nearly 3 points in the previous five trading days amid optimism that economic growth is moderate and not likely to fuel inflation, which can reduce the value of fixed-income securities.
But Thursday’s retail sales report--along with another government report indicating that inflation may have bottomed out--sparked a round of profit taking.
“The bond traders are sitting on pins and needles today,” said Sung Won Sohn, a senior economist based in Minneapolis. “The market is definitely more bearish.”
In the inflation report, the Labor Department said consumer prices rose 0.2% in December as a big drop in energy costs helped offset higher food prices. That was even with November’s rise, but analysts had expected a gain of just 0.1%.
Stocks
The Dow Jones industrial average closed lower but well above its lowest levels of the day, at 3,842.43, down 6.20.
Smaller stocks fared better. The Nasdaq market’s composite index managed to dig out of a hole and creep up 0.94 to a new high of 787.81. It beat its prior best of 787.42, reached Oct. 15.
Big Board volume came to 277.97 million shares, down from 310.69 million Wednesday, which marked the seventh straight session in which more than 300 million shares were traded.
In the broader market, falling issues outnumbered advances on the New York Stock Exchange, where 1,146 stocks fell in price, 928 issues gained and 664 were unchanged.
Stocks moved lower from the start of trading, tracking the direction of bonds. Sellers were motivated to collect profits amassed during the recent run-up in prices that carried the Dow industrials to a succession of new highs.
Market watchers were comforted that the selling occurred on a day of lower volume.
Heavy selling in major foreign financial centers was negative for business at home. Stocks sagged in Tokyo, with the Nikkei 225-share average losing 216.62 points and closing at 18,577.26. In Frankfurt, the 30-share DAX average closed at 2,164.66, down 44.52 points, while London’s financial Times 100-share average fell 12 points to close at 3,360.0. Mexico City’s Bolsa index shed 29.75 points to finish at 2,535.58. Share prices also tumbled in Paris, Zurich and Hong Kong.
Among the market highlights:
* Quaker Oats tumbled 3 3/8 to 66 after the company said earnings for its fiscal second quarter will be 15% to 20% below those of a year before. It cited the weak European economy.
* GTE said it will cut 17,000 jobs in its telephone operations over the next three years and take a $1.8-billion pretax restructuring charge in the fourth quarter. Its stock slipped 1/4 to 34 5/8.
* Procter & Gamble lost 1 1/2 to 57 on news that it will close four plants and shut down production lines at six other sites in the United States and Canada as part of a previously announced restructuring.
* Bear Stearns gained 3/4 to 23 7/8 after reporting record quarterly earnings. Morgan Stanley gained 1 3/4 to 74 3/4 and Paine Webber was up 1/4 to 27 1/4.
* J.P. Morgan rose 3/4 to 70 3/8 after reporting strong fourth-quarter earnings, including record trading revenue of $606 million. Citicorp rose 2 1/8 to 40 3/4 on an upbeat earnings forecast.
Other Markets
The dollar reached its highest level against the German mark in more than two years, following on the unexpectedly strong rise in retail sales last month. The dollar was higher against other major currencies except the Japanese yen.
The dollar closed in New York at 1.751 German marks, compared to 1.734 marks Wednesday. It was trading at its highest level against the mark since September, 1991, traders said.
Elsewhere, gold rose on the New York Comex, closing at $390.00 an ounce, up $3.70 from Wednesday. Silver gained 10.5 cents to close at $5.180 an ounce.
Market Roundup, D6
