FINANCIAL MARKETS : Dow Falls, but Nasdaq Gains on Tech Rally
Blue-chip stocks faltered Wednesday but smaller issues continued to gain, led by another surge in technology stocks.
Elsewhere, the bond market’s rally stalled, while the dollar edged higher.
The Dow Jones industrial average, which has been rocketing higher with few interruptions for the past month, finally began to see some marked profit taking Wednesday.
At 3:55 p.m. EDT, the Dow was off 22 points--heading for its biggest one-day decline since March 7. But a burst of computerized buying programs lifted the index near the close, and it finished off just 12.45 points at 4,422.60.
On the Big Board, losers outnumbered winners by about 4 to 3 in active trading.
Smaller stocks, however, continued to play catch-up to the Dow’s recent surge. The Russell 2,000 index of smaller stocks added 0.62 point to a record 272.79.
And the Nasdaq composite index, heavily weighted with technology stocks, surged 3.68 points to a record 871.93.
The Treasury bond market provided a healthy backdrop for stocks early in the day as yields dropped again.
But yields began to edge up in late trading, and by the close bonds were little changed from Tuesday. The 30-year T-bond yield was flat at 6.86%, a 14-month low.
Some traders said foreign central banks, which have amassed large holdings of Treasury securities over the past year in their efforts to defend the dollar, were sellers Wednesday, putting pressure on the market.
“They’ve been the big winners throughout this whole thing,” said James Madelmayer, a vice president at S.G. Warburg & Co. in New York. “They bought cheap dollars and cheap Treasuries, and they got capital appreciation and currency appreciation.”
The dollar continued to advance after an initial dip sparked by speculation that French President Jacques Chirac would scrap a strong franc policy. Such rumors sent traders scrambling to buy German marks and sell francs, which indirectly weighed down the dollar.
When the rumors were denied, the dollar rose. It closed at 86.85 Japanese yen in New York, up from 86.60 on Tuesday, and at 1.447 German marks, up from 1.444.
The strengthening dollar could gain again today if the government reports a smaller-than-expected March trade deficit, analysts said.
But in the stock market, some analysts are increasingly worried that the huge spring rally is running out of steam and that any abrupt turn in prices will bring a torrent of profit taking.
“Everyone is looking for that 5% correction, and nobody wants to be in the market when that happens,” warned Leon Brand, analyst at NatWest Securities.
Among Thursday’s highlights:
* Investors began selling some of the industrial issues that have been leading the market lately on hopes for an economic “soft landing.” Losers included AlliedSignal, off 1 to 40 3/4; DuPont, down 1 1/4 to 68; 3M Co., off 1 1/4 to 60 1/4; Varity, down 1 to 44, and Chrysler, off 1/2 to 43 3/4.
* Airline stocks also stumbled after the chief executive of AMR, American Airlines’ parent company, said the airline industry’s business cycle is probably near its peak. AMR dropped 2 to 67 3/8, United Airlines parent UAL fell 2 1/2 to 113 3/4 and Delta lost 2 1/2 to 63 3/4.
* Phone utilities slid for a second day in the wake of Pacific Telesis’ warning Monday that its 1995 earnings will be below 1994 results. PacTel lost 1/4 to 26 3/4, Southwestern Bell gave up 1 1/4 to 43 1/2, Bell Atlantic fell 1 1/8 to 53 3/4 and US West was off 1/2 to 40.
* The market’s strength was concentrated in technology. Semiconductor equipment maker Applied Materials rocketed 11 33/64 to 80 17/64 after stunning analysts with quarterly earnings of $1.08 a share, up 66% from a year ago.
That set off another frenzy of buying in tech issues, especially those related to the semiconductor business.
Winners included Intel, up 1 7/8 to 110 3/4; Novellus Systems, up 4 3/4 to 66 1/2; Cabletron Systems, up 2 1/2 to 50 1/4; Texas Instruments, up 2 3/8 to 118 7/8, and Western Digital, up 1 3/8 to 19 1/8.
Among foreign markets, Tokyo’s 225-share Nikkei average ended up 82.45 points at 16,471.35, while Frankfurt’s DAX index and London’s FTSE-100 index were modestly lower. Mexico’s Bolsa index eased 6.5 points to 2,064.75, while Argentina’s Merval index soared 6.1% to 452.01 on new optimism about the country’s economy.
