FINANCIAL MARKETS : Profit Taking Clips Ascent of Blue Chips; Dow Falls 22.2
Blue-chip stocks snapped a four-day advance Wednesday, hurt by year-end profit taking, a drop in the dollar and some signs of stability in the Mexican market slowing the migration into American holdings.
The stock price movements were exaggerated by thin holiday-week trading.
The Dow Jones industrial average fell 22.20 to 3,839.49 after being run up 94 points in the previous four sessions. The blue-chip index had gained more than 175 points since it closed at 3,677.99 on Nov. 22.
The decline in the dollar was felt most in the bond market, where prices fell sharply in a sell-off that spilled into stocks. Given that situation, there were “good reasons to take profits,” said Bob Walberg, market analyst at MMS International in Chicago.
Declining issues outnumbered advancing ones nearly 3 to 2 on the New York Stock Exchange, but volume was light. About 243 million shares changed hands on the Big Board, up from 211 million shares traded Tuesday.
The dollar fell nearly 3 pfennigs to about 1.55 German marks on technical factors, and declined against the Japanese yen and other major currencies. The drop in the dollar pushed the price of the 30-year bond down 27/32 point, or $8.44 per $1,000 in face value. The bond’s yield, which moves in the opposite direction, rose to 7.83% from 7.76% late Tuesday.
Shorter term Treasury securities posted smaller losses, and most bills, the shortest term maturities, actually gained strength.
Market strategists said the drop in long-term bond prices was sparked by fears that the dollar’s decline would accelerate inflation. Rising prices tend to diminish the value of bonds and other securities that pay interest at fixed rates.
The dollar also fell against the Mexican peso after a strong run-up over the last week. Investors grew concerned that Mexico’s financial crisis would begin to have an adverse effect on the dollar and U.S. securities.
There were unconfirmed reports that Mexico would try to increase a $6-billion credit line with the United States and use the borrowed money to buy pesos. Such a strategy would aim to bolster the beleaguered Mexican peso, which went into free fall last week after the Mexican government abandoned its policy of supporting it.
Todd Clark, senior director in equity trading at Mabon Securities, said that with the partial recovery in the peso, investors weren’t necessarily following last week’s strategy of selling Mexican securities and buying U.S. issues.
“The theme for the last couple of weeks that has really propped up the U.S. market is the repatriation of capital from Latin America,” he said. “Now that we’re seeing a little stability in Mexico, the impact of that has lessened a little bit.”
Among the trading highlights:
* The Mexican stock market recovered some ground, so that American shares of Mexican companies ended higher. Mexico’s IPC index, the key measure of the Bolsa, ended the day 2.67% higher. Telefonos de Mexico’s American depositary receipts rose 3 3/4 to 41 1/2 on leading volume of 11.45 million shares on the New York Stock Exchange. Grupo Televisa rose 2 5/8 to 32 1/2. The Mexico Fund rose 2 1/4 to 22 1/4.
* Among the 30 Dow index components, International Paper fell 1 1/2 to 74 5/8, IBM fell 1 1/4 to 73 and Caterpillar slid 1 to 54 1/4.
* Gold stocks bucked the market trend and rose, along with a $2.10-per-ounce rise in spot gold prices to $383.70. Santa Fe Pacific Gold rose 1/2 to 13 1/4; American Barrick added 7/8 to 22 5/8; Placer Dome advanced 1 1/8 to 22.
* Retail stocks extended Tuesday’s slide following reports of lackluster Christmas sales. Toys R Us fell 3 to 30 1/8 after a delayed opening for an order imbalance, following reports that Wertheim Schroder & Co. had lowered earnings estimates. A call to Wertheim Schroder was not returned.
* AnnTaylor declined 2 1/4 to 31 7/8. Montgomery Securities said AnnTaylor might not meet its fourth-quarter profit goals and a C.J. Lawrence analyst lowered earnings estimates for it and several other retailers. Elsewhere, foreign markets were mixed. London stocks finished a quiet post-Christmas session mostly higher. The Financial Times-Stock Exchange 100 closed 12.4 points higher at 3,095.8. In Frankfurt, German share prices pared most of their minor gains by the close of the bourse session as DAX futures prices slipped into losses, dealers said. The DAX index ended up 2.86 points at 2,109.01. Tokyo stocks ended lower, with the Nikkei average off 45.83 points at 19,665.53.
February deliveries of light, sweet crude oil finished 15 cents a barrel higher on the New York Mercantile Exchange, at $17.79.
