FINANCIAL MARKETS : Dow Loses More Ground; Yields Rise Despite Strong Auction
Market Overview
* The stock market lost its upward momentum Tuesday as prices fell on profit taking in extremely heavy trading.
* Treasury bond yields increased moderately despite healthy investor demand for the government’s auction of $17 billion in two-year notes.
Stocks
The market opened slightly higher despite a poor prognosis. Equity markets overseas were mixed, and long-term bond yields were starting to rise. Stocks quickly dipped into negative territory and steadily inched below the 3,900 level the Dow reached Friday.
By the end of trading, the Dow Jones average had shed 17.45 points to close at 3,895.34, on Big Board volume of 326.12 million shares.
In the broader market, declining issues outnumbered advancing ones by about 3 to 2 on the New York Stock Exchange. Most analysts weren’t particularly concerned with the decline, and the key barometer settled above its lowest levels despite repeated rounds of computer-triggered sell programs that dumped stocks.
“Frequently when markets are a poke above these centennial numbers, you do get a pullback for a couple of days, and that shouldn’t upset you too much,” said Robert Stovall, president of Stovall-Twenty-First Advisors.
“In such a short span of time, we’ve had a real spike up,” he said. Indeed, the Dow had added nearly 160 points since the beginning of the year.
Several factors pressured the market, including declines in a handful of leading stocks. IBM, a Dow component, plunged after reporting earnings. While the computer giant posted its first profit in more than a year, sales were disappointing and the stock plummeted more than 2 points. But IBM managed to recover, closing at 58 1/4, down 3/8.
* Cooper Industries fell a whopping 9 7/8 to 41 5/8 after indicating its 1994 performance is likely to be significantly lower than expected.
* Still, there were some bright spots. Eugene Peroni, an analyst with Janney Montgomery Scott Inc. in Philadelphia, characterized it as “a tug of war within the Dow.” American Express jumped 1 1/4 to 32 3/4 after indicating it planned to spin off its Lehman Bros. subsidiary to the public.
* And Merck added 1 to 35 3/4 after posting double-digit earnings gains. That helped pull up the entire drug sector.
* WLR Foods surged 9 1/2 to 28 1/2 after it said it received a merger proposal from Tyson Foods for $30 a share, in cash.
* Larger-name tech stocks were generally lower, including Apple, off 1 1/8 to 33 7/8; Lotus, down 7/8 to 52 7/8, and Sun Microsystems, down 1/4 to 25 5/8.
In foreign trading, Tokyo stocks shrugged off Monday’s precipitous falls to end sharply higher Tuesday, boosted by a late flurry of index-linked buying. The 225-share Nikkei average gained 295.12 points, or 1.61%, to end at 18,648.36.
Mexico City’s Bolsa index finished down 33.81 points, at 2,659.90, while London’s Financial Times 100-share ended 37.4 points down at 3,444.0. In Germany, the DAX-30 share average closed at 2,126.78, up 46.77 points. However, prices were sharply lower in high-volume post-bourse trade, as falling futures pushed the index back by 32.42 to 2,094.36.
Credit
Further signs of economic strength, including the strongest sales of previously owned homes since 1979, worked to depress the bond market.
The main 30-year bond yield rose to 6.34% from 6.30%, pushing its price down 17/32 point, or $5.31 per $1,000 in face value. The yield moves in the opposite direction from the price.
Short-term Treasuries, meanwhile, fell by 1/32 point to 3/32 point and intermediate maturities fell between 1/8 point and 1/4 point, the Telerate Inc. financial information service reported.
The Treasury sold the two-year notes at a high yield of 4.11%, a level within the range of expectations. Reflecting the decent demand, the bid-to-cover ratio, which measures the number of bids offered to those received, was a strong 2.85 to 1.
But the home sales figures and an important report on consumer confidence dampened enthusiasm ahead of the auction results.
The National Assn. of Realtors reported that sales of previously owned homes grew at a 6.7% rate in December, a monthly record. For all of 1993, sales of existing homes rose to a 14-year high, the group said.
In addition, the Conference Board, a New York-based business research group, said its monthly index of consumer sentiment gained 3.4 points to 83.2 in January, following large gains in December and November.
The reports were viewed as negative by the market for fixed-income investments. Robust economic growth can aggravate inflation.
Other Markets
The dollar ended mostly lower against most major currencies following a mixed performance overseas.
Meanwhile, in commodities trading on the New York Comex, gold for current delivery settled at $381.40 an ounce, up 30 cents from Monday. Silver traded at $5.088 an ounce, down from $5.106.
