Technology Selloff Trims Dow; Japan Stocks Surge
As Tokyo stocks reached a two-year high, U.S. blue chip issues closed lower Wednesday, depressed by a selloff of technology shares.
Yields of long-term Treasury bonds ended slightly higher after seesawing in reaction to comments made by Federal Reserve Board Chairman Alan Greenspan and other top officials. Greenspan told a meeting of central bankers in London that U.S. inflation appears to have been restrained for now.
German Bundesbank President Hans Tietmeyer echoed Greenspan’s sentiments. Tietmeyer said he hopes and expects to see a falling inflation rate. The price of the Treasury’s main 30-year bond dropped 7/32 point, or $2.19 per $1,000 in face value. The yield rose to 7.28% from 7.26%. Prices of shorter-term Treasury securities were mostly unchanged.
Amid growing signs of impending economic recovery in Japan, the 225-stock Nikkei index rose 219.24 points, or 1.04%. It closed at 21,261.95, the highest level since March 2, 1992. That left the index up about 22% for the year. It rose another 129.03 points in morning trading today.
Analysts and government officials remain divided as to whether Japan’s worst postwar recession is ending, but fear of moving into the market too late is bringing even relatively cautious Japanese institutional investors back in force. Until now, this year’s strong rise in Japanese stocks was led by foreigners betting on long-term prospects. Volume was heavy, with an estimated 600 million shares changing hands.
A report from the Yamaichi Research Institute of Securities and Economics expressed a widespread view that an economic recovery in Japan will clearly be under way by fall. The report predicted that from April 1 to Sept. 30, profits for Japan’s 701 major publicly traded companies will be down 13.5% compared to the previous year. But it said that in the ensuing six months, profits will jump 23.4% over the year-earlier period.
Some analysts were even more optimistic. “Corporations are beginning to reap the success of two or three years of restructuring, and as a result of that, profits are poised for a very strong recovery,” said Jesper Koll, an analyst at S.G. Warburg Securities. “I think there can be an explosion of profits in Japan. Profits could easily double over the next two years.”
But consumer insecurity and a strong yen make officials cautious. “It would be nice if I could say the economy has bottomed, but I can’t say that yet,” Eijiro Hata, minister of international trade and industry, told reporters Tuesday.
While restructuring is helping to boost profitability at many Japanese firms, it has taken a toll in layoffs, forced early retirements and sharply reduced hiring prospects for college graduates. There is also continued pressure on wages, largely through cuts in the size of traditional twice-yearly bonuses, which constitute about 30% of the average company employee’s pay. A survey of 325 major corporations released Wednesday by the Japan Federation of Employers Assns. revealed plans to cut bonuses by an average of 2.7% this summer, a record reduction.
In New York, the Dow Jones industrial average fell 6.46 points to 3,749.45. The technology-heavy Nasdaq index plunged 9.51 to 729.79.
“They’re taking out some of these technologies and shooting them,” said Leon Brand, global market strategist at NatWest Securities.
Technology stocks were hurt by speculation that the book-to-bill ratio--a barometer of the semiconductor industry’s activity--would be down for the first time this year with the onset of the historical summer slowdown.
“The performance of semiconductors sort of set the tone for the market,” said Bill Allyn, director of listed equity trading at Jefferies & Co.
Analysts said the selling spree in technology stocks was a follow-up to Tuesday’s downturn in economically sensitive cyclical stocks. This indicated that while major indexes appear stuck in narrow ranges, individual groups were being scrutinized, they said.
“This is sort of a stock picker’s paradise,” said Gene Jay Seagle, a technical analyst who heads Tactics & Technics.
The dollar was mixed in foreign trading. It weakened against the Japanese yen after U.S. officials said the government won’t rule out trade sanctions as a means of forcing open Japan’s markets.
Gold prices were higher. On the Commodity Exchange in New York, gold for current delivery rose 60 cents an ounce to $381.70.
A report on wholesale prices is expected to be released Friday.
Among the market highlights:
Merisel plunged 6 3/4 to 10 after warning that its second-quarter earnings will be significantly below analysts’ expectations.
Among computer makers, International Business Machines dropped 1 to 61 5/8; Compaq fell 2 to 34 3/8; Dell ended off 1 3/4 at 26 1/2; Apple shed 1 3/8 to 26 1/8.
In the semiconductor group, Texas Instruments fell 3 1/2 to 76 1/4 and Cirrus Logic ended 2 5/8 off at 30 1/2.
Vitamin maker Nature’s Bounty fell 3 7/8 to 7 3/4. It cited slower-than-expected sales and earnings due to the impact of a recent report on Vitamin E and beta carotene published in the New England Journal of Medicine. A second vitamin retailer, General Nutrition, also on the Nasdaq, fell 1 1/2 to 18.
The study, released in April, found that Vitamin E and beta carotene supplements were ineffective in preventing lung cancer in smokers and might be harmful.
Share prices also climbed in London and Paris, rebounding from declines Tuesday with the help of favorably received economic news and technical forces.
In Germany, share prices finished higher overall for the first time this week. The DAX-30 index was up 10.10 points at 2,145.20.
European bond markets reversed the previous day’s losses after the Bundesbank cut money market rates. The 10-year German bond’s yield fell to 6.91% from 7% on Tuesday.
