FINANCIAL MARKETS : Profit Taking Reins in Dow; Dollar Mixed
Stocks took a breather Monday after their record highs last week, and the dollar finished mixed amid pessimism about the U.S.-Japan automobile trade talks and further signs of a slowing economy.
Profit takers took charge in the market, but Wall Street’s retreat was kept in check by lingering euphoria over recent reports of robust corporate profit growth in the first quarter.
Despite an improvement in late trading, the Dow Jones industrial average closed with a small loss. Other, broader market measures also ended in deficit.
The Dow dipped 5.19 points to 4,316.08 from Friday’s record finish. The New York Stock Exchange composite index slipped 0.17 point to 277.14, Standard & Poor’s 500 stock index fell 0.45 point to 514.26, and the Nasdaq composite dropped 2.35 points to 841.63. The American Stock Exchange market value index rose 2.57 points to 480.13.
In the broader market, losing issues outnumbered gainers by about 9 to 8 on the NYSE, while volume fell to 296.83 million shares, down from 322.96 million traded on Friday.
Analysts were unperturbed by the downtrend in stocks, noting that the market has been overdue for a rest after setting records repeatedly for months.
Investors looking for excuses to sell viewed the latest batch of economic news as ample cause to cash in profits amassed during the market’s rally.
One report in particular, the National Assn. of Purchasing Management’s monthly assessment of the manufacturing sector, provoked some uneasiness among investors because it reinforced the perception that the economy has slowed, a development that could impair corporate profit potential and hurt stock prices.
The purchasing report shows that American manufacturing grew modestly in April and that price increases for materials slowed considerably, a sign of easing inflation. The April composite index stood at 52%, compared to 51.4% in March.
“There’s a worry out there after last Friday’s GDP report that the ‘soft landing’ may become a lot bumpier than anyone would have forecast,” said Hugh Johnson, chief investment officer at First Albany Corp.
“The real key going forward for stocks is earnings, and the GDP report gave everyone reason to worry about future earnings, and that’s the excuse for profit taking,” he said.
The dollar fell against the Japanese yen and rose slightly against the German mark. The currency traded in narrow ranges, and volume was light due to holidays in Japan and Europe.
In New York, the dollar finished at 83.50 yen, down from 84.20 on Friday, and at 1.391 marks, up from 1.387.
The U.S. currency’s latest decline against the yen was largely the result of traders’ fears that Washington and Tokyo will be unable to reach agreement in their talks to boost exports of American autos and auto parts to Japan.
Meanwhile, long-term Treasury bond yields were unchanged despite fresh suggestions of a slowdown from last year’s brisk economic pace, news that ordinarily might assuage investors’ concerns about inflation. The price of the Treasury’s main 30-year bond slipped 1/32 point, or 31 cents per $1,000 in face value. Its yield held at 7.34%.
In Monday’s market highlights:
* Stocks in energy and oil field services attracted attention amid speculation about the consequences of President Clinton’s decision to sever U.S. economic ties to Iran. Exxon gained 1 3/8 to 70 7/8, Chevron rose 1 1/2 to 48 7/8, Occidental Petroleum was up 5/8 to 23 5/8 and Texaco added 1 1/2 to 69.
* Mobil jumped 3 7/8 to 98 3/4. In addition to the general strength in the oil sector, Mobil was boosted by the news that it will lay off 4,700 employees worldwide in a restructuring intended to save $1.05 billion a year.
* Genentech lost 2 3/8 to 48 after the company extended for four years Roche Holdings’ option to buy Genentech shares. Some traders had been betting that Roche might make a bid sooner for the percentage of the company it does not already own.
* Caterpillar fell 1 to 57 1/2. Brown Bros. Harriman downgraded the stock to “neutral” from “buy,” noting that the company’s earnings may peak next year.
* Intel added 1 3/4 to 104 1/8. Bear Stearns raised its 1996 earnings estimate and reaffirmed its “buy” rating.
Stocks were higher in overseas trading. Tokyo’s Nikkei-225 average closed up 4.71 points at 16,811.46, while in London, the FTSE-100 added 3.7 points to close at 3,220.4. Financial markets in Germany and Mexico were closed for national holidays.
