FINANCIAL MARKETS : Stocks Tumble, Dollar Skids on Inflation, Economy Fears : Markets: Dow loses 43.23 as traders worry that the slowdown will hurt profits. Import price report halts bond rally.
Stocks fell sharply for a second day Friday, clipped by concerns that the economy’s apparently pronounced deceleration could hurt corporate profits.
Meanwhile, the dollar slumped again on economy worries, while the bond market halted its rally after a surprisingly strong inflation report.
With many investors and traders already gone for the long holiday weekend, some analysts discounted Friday’s market jitters.
But others warned that stocks and bonds are primed for pullbacks after this year’s spectacular rallies. “It seems like there has been a fundamental change of attitude in the market,” said Bill Allyn, trader at Jefferies & Co. “The focus now is on the fact [that] we may be in for some tough sledding in the economy.”
The Dow Jones industrial average, which lost 25.93 points Wednesday, fell 43.23 points to 4,369.00 on Friday, for a net decline of 1.6% from its record high of 4,438.16 set Wednesday.
For the week, however, the Dow still had a net gain of 27.67 points.
Stocks began to fall from the outset Friday, pressured by a continuing decline in the dollar. The Dow twice was down more than 50 points during the day, prompting the New York Stock Exchange to restrict computerized program trading.
But pre-holiday trading was light at just 291 million shares on the NYSE. That may have magnified the market’s slide, some traders said.
Even so, losers outnumbered winners by 13 to 8 on the NYSE and broad market indexes fell with the Dow. The Standard & Poor’s 500-stock index fell 4.94 points to 523.65, and the Nasdaq composite index lost 5.45 points to 871.87.
The dollar, which began to plunge Thursday, was hammered again as currency traders focused on the possibility that the Federal Reserve Board may cut short-term interest rates soon to revive the rapidly withering economy.
Lower rates could diminish the attraction of U.S. assets to foreigners, encouraging them to sell.
Worries about the U.S.-Japan trade dispute also hurt the dollar.
By the close in New York, the dollar was at 82.65 Japanese yen, down from 84.81 on Thursday and 87.23 on Wednesday. It also slumped to 1.378 German marks from 1.398 on Thursday and 1.440 on Wednesday.
Traders said large U.S. hedge funds have been selling dollars during the past two days because they think the currency will weaken with the economy.
Meanwhile, bond yields closed marginally higher after the government said import prices rose 1.2% in April, higher than expected. That raised the possibility that inflation will creep up even as the economy weakens, thereby making it difficult for the Fed to reduce rates to help the economy.
The 30-year Treasury bond yield rose to 6.75% from Thursday’s 15-month low of 6.72%.
Some Wall Streeters worry that a stall in the bond market could continue to unnerve stock investors in the near term, especially with fears already growing about the health of corporate earnings.
Concern about the fate of corporate profits was heightened in recent days by reports showing the economy is far weaker than expected.
Also, a rise in weekly unemployment claims and news that home resales dropped in April for the third time in four months added to suspicions that the economy isn’t responding to this year’s drop in long-term interest rates.
Among Friday’s highlights:
* Chipcom, a supplier of computer networking equipment, set a sour tone in the market after it said second-quarter earnings will be far below estimates. It blamed excess inventories at a key customer.
Chipcom stock dove 11 7/8 to 20 1/8. Other tech issues falling included Hewlett-Packard, down 2 3/8 to 66 7/8; Cabletron Systems, off 1 to 53 7/8; Ascend Communications, down 1 5/8 to 38 5/8, and Texas Instruments, off 3 3/4 to 121.
* Industrial stocks losing ground on economy worries included Caterpillar, down 1 3/4 to 57 3/8; Nucor, off 1 3/8 to 47 3/8; Dow Chemical, down 7/8 to 72 3/8, and Exxon, off 1 5/8 to 69 3/4.
* Philip Morris tumbled 2 to 69 7/8 after announcing a major cigarette recall.
In foreign trading, Mexico’s Bolsa stock index fell 40.61 points to 1,959.50, extending its recent decline. Stocks closed moderately lower in most key foreign markets.
* BLOOM IS OFF
California’s economy has lately turned as dreary as the spring of 1995. A1
