FINANCIAL MARKETS : Profit Takers Send the Dow Skidding 22.54
Blue-chip stocks tumbled Monday as investors sold issues that ran up in Friday’s session, but technology stocks bucked the trend, ending the day with some gains.
After soaring more than 55 points Friday following a sharp advance in the bond market, the Dow Jones industrial average fell 22.54 points Monday to close at 3,908.12. In the broader market, declining issues outnumbered advancers by about 9 to 8 on the New York Stock Exchange.
Stocks traded only slightly lower until near the session’s close, when computer-guided program trading intensified the Dow’s decline, said James Melcher, president of Balestra Capital.
He attributed the decline to significant division of opinion among stock analysts about the strength of the economy, inflation and the direction of interest rates.
“With all facts providing conflicting information, it is easy to justify any emotional decision, thus the market swings back and forth,” Melcher said.
James Solloway, director of research at Argus Research Corp., said much of Monday’s stock market activity involved investors selling stocks that had gained in value Friday.
Stocks were also hurt by a rise in long-term Treasury bond yields, which edged back toward 8% as some traders took profits in the aftermath of Friday’s sharp price run-up.
The bellwether 30-year bond yield closed at 7.97%, up from Friday’s 7.95%, pushing prices down 9/32 point, or $2.81 per $1,000 in face value. Yields rise when prices fall.
Stock investors often look to the bond market for direction because higher rates make shares less attractive and increase the cost of money to companies.
Investors were also looking ahead to key economic reports due out this week, Melcher said. Particular attention will be paid to today’s report from the National Assn. of Purchasing Management and Friday’s October employment data.
Investors worry that signs of strong growth will push the Federal Reserve Board to nudge short-term interest rates higher for the sixth time this year. They fear that could slow the economy.
The dollar also fell broadly in foreign exchange trading Monday, retreating from Friday’s rally on new fears that inflation will haunt the economy and undermine the U.S. currency’s value.
In New York, the dollar closed at 96.85 Japanese yen, down from 97.28 on Friday. The dollar fell to 1.504 German marks, down from 1.515.
Broader market indexes were mixed, with the NYSE’s composite index falling 0.24 point to 258.69, while the Standard & Poor’s 500-stock index lost 1.42 points to 472.35. The Nasdaq composite index rose 1.34 points to 777.49 and, on the American Stock Exchange, the market value index rose 0.41 point to 458.57.
Big Board volume came to 302.82 million shares, down from 381.58 million on Friday.
Among the market highlights:
* Stocks sensitive to economic cycles, such as paper, transport and heavy equipment, fell. Deere lost 1 5/8 to 71 5/8, while International Paper tumbled 2 1/8 to 74 1/2.
* In contrast, technology stocks fared well. Novell jumped 1 1/8 to 18 1/2 and Apple Computer was up 1 1/16 to 43 3/16.
The sense among some traders, Melcher said, is that what America does best is technology and that is where investment money ought to go. In addition, smaller stocks were hit hard in the spring and some are now relatively inexpensive.
* RJR Nabisco Holdings ended up 1/8 at 6 7/8 after saying it plans to offer a 19% stake in Nabisco Holdings Corp. in an initial public offering. RJR also said it is dropping plans to buy a 20% stake in Borden Inc. Borden fell 1/4 to 13 1/2.
* Philip Morris sank 2 7/8 to 61 1/8 on news of a decision by a Florida judge Friday to certify a class-action lawsuit against major tobacco makers.
* General Motors fell 7/8 to 39 1/2 on speculation that the auto maker will cut up to 60,000 vehicles from its fourth-quarter production plans.
* Drug companies rallied on bargain hunting and carry-over from strong third-quarter results. Schering-Plough rose 1 to 71 1/4 and Pfizer gained 3/4 to 74 1/8.
Stocks ended mostly higher abroad. Frankfurt’s 30-share DAX average closed at 2,071.63, up 31.31 points, while Tokyo’s Nikkei average gained 184.44 points to 19,989.60. In London, the Financial Times 100-share average added 13.6 points to close at 3,097.4. Mexico City’s Bolsa index dropped 19.44 points to 2,552.08.
