FINANCIAL MARKETS : Auto Stocks Skid, Taking Dow With Them; Yields Rise
Stocks dropped in a late selloff Thursday, hurt by a slide in auto stocks and jitters ahead of today’s report on July employment.
The Dow industrials slumped 26.87 points to 3,765.79, with most of the decline occurring in the last hour of trading.
In the broad market, losers outnumbered winners by 12 to 9 on the New York Stock Exchange in active trading of 294 million shares.
Early in the day, heavy selling of the Big Three auto stocks dampened the market’s tone. The stocks fell after a Merrill Lynch analyst downgraded them to “neutral” from “above average” in the wake of disappointing July auto sales.
“The story (Thursday) was autos,” said Michael Metz, analyst at Oppenheimer & Co. “It put a chill on the market overall.”
As the day wore on, analysts said investors began to concentrate on the possibility of another official interest rate hike soon by the Federal Reserve Board.
In part, the market’s worries stemmed from the government’s report Thursday that the number of Americans seeking unemployment benefits last week declined to the lowest level since February.
That set the stage for today’s report on July employment. If job creation was robust last month, investors fear, the Fed will be compelled to raise short-term interest rates again to further cool the economy.
In a speech in Salt Lake City, Robert Parry, president of the Federal Reserve Bank of San Francisco, heightened investors’ worries when he said that the Fed worries about a lack of slack in the job market--potentially signaling higher wage inflation.
Still, the stock market seemed to be far more worried Thursday than the bond market. Bond yields closed only slightly higher, with the 30-year Treasury bond yield finishing at 7.40% compared to 7.38% on Wednesday.
Among the market highlights:
* Merrill Lynch’s downgrade pushed GM shares down 2 1/8 to 50 3/4, Ford down 2 to 29 1/2 and Chrysler down 1 3/4 to 45 5/8.
Some auto parts suppliers also fell. Eaton dropped 1 7/8 to 49, Goodyear lost 1 1/8 to 33 7/8 and TRW was off 3/8 to 71 1/4.
* Paper and lumber stocks, which have soared recently, were hit by profit taking. Georgia-Pacific fell 2 3/8 to 67 after brokerage Goldman Sachs removed the stock from its “recommended” list. Other losers included International Paper, off 1 1/8 to 75, and Weyerhaeuser, down 1 1/8 to 43.
* Oil stocks also came under pressure. Phillips lost 1 3/8 to 30 1/2, Mobil sank 1 1/2 to 82 3/8 and Unocal eased 5/8 to 28 3/4.
* Retailers were mixed after reporting July sales. Wal-Mart fell 5/8 to 24 3/8 and Lowe’s tumbled 3 3/8 to 32 3/4 on disappointing sales reports, but Dayton Hudson gained 7/8 to 83 1/8 and electronics retailer Circuit City jumped 1 3/8 to 22 1/2.
* Caremark International fell 2 3/8 to 21 1/8 in response to news that the company, a big supplier of intravenous drugs, was indicted for allegedly paying more than $1.1 million in kickbacks to a doctor who referred his patients to Caremark.
* Shandong Huaneng Power Development made its initial public stock offering and closed on the NYSE at 14 1/4, the same as its offering price. The company owns interests in certain coal-fired electric power generating plants in fast-growing Shandong Province, China.
* Among the day’s big losers, California Micro Devices shares collapsed when a slew of fourth-quarter product returns led investors to speculate that the company could face future accounting concerns. The stock plunged 8 7/8 to 13 1/8.
* In the takeover rumor mill, Warner Lambert jumped 2 1/8 to 74 3/8 as some traders bet the company could be the next health care target. But other drug stocks were mixed. Schering-Plough fell 1 to 66 5/8 and Pfizer was unchanged at 63 1/4.
* Among Southland issues, lingerie maker Body Drama jumped 1 1/8 to 2 3/4 after the company’s majority owner, Beeba’s Creations, announced plans to take Body Drama private. A tender offer will be made at $2.93 a share.
In overseas trading, Frankfurt’s 30-share DAX average ended down 15.56 points at 2,183.36 as chemical stocks eased and weaker bond futures prices dampened sentiment. In London, the FTSE-100 index eased 9.9 points to 3,150.5.
Stocks ended slightly firmer in Tokyo, with the Nikkei-225 average rising 44.11 points to 20,676.84.
In Mexico City, the Bolsa index inched up 6.50 points to 2,573.81, its fifth straight gain and its highest level since March 7.
In currency trading, the dollar advanced in largely technical dealings ahead of the July employment report, with a rumored impending U.S. invasion of Haiti giving the greenback an early lift.
The dollar rose to its high for the week against the German mark, despite the absence of any significant new economic data or policy statements, a move PaineWebber analyst Stephen Flanagan called a “bullish signal.”
The dollar closed in New York at 1.588 German marks, up from 1.578 on Wednesday. It also rose against the Japanese yen, closing at 100.38 yen, up from 100.35.
In commodities markets, livestock futures surged, bolstered by signs of strong demand for meat.
But grain prices were lower. At the Chicago Board of Trade, widespread rains across the Midwest washed away concern about recent dryness in some states and pressured grain prices.
Soybean futures fell to a 20-month low amid prospects for record or near-record crops this year.
