FINANCIAL MARKETS : Bond Yields, Profit Taking Spark Selloff
Stock prices pulled back Tuesday as disappointment over corporate earnings and profit taking knocked the market off its lofty perch.
Rising bond yields also gave investors an excuse to sell stocks and collect profits from the recent record-breaking run-up while they reviewed corporate earnings reports and braced for possible disappointments.
The Dow Jones average fell 21.79 points to 4,680.60. Much of the deficit was due to a plunge in shares of International Paper, one of the blue-chip indicator’s components.
Losers outnumbered gainers by about 13 to 10 on the New York Stock Exchange. Big Board trading was an active 376.78 million shares, down from 409.68 million Monday.
Almost all broad gauges lost ground. Only the American Stock Exchange managed to buck the trend, rising 2.88 points to 509.05, a fourth-straight record close.
Financial reports were the focus for investors. The second-quarter results intensified speculation about what the future holds for companies. Caution is expected to prevail on Wall Street as investors attempt to judge whether sluggish economic activity this year has impaired corporate profitability and marred growth prospects.
Several high-profile companies released their quarterly figures, among them International Paper, which failed to impress investors despite posting unexpectedly robust results.
James Melcher, founder and president of Balestra Capital in New York, regarded Wall Street’s setback as healthy.
“The market has been on quite a tear and hasn’t had a significant correction for more than a year,” he said. “I think everybody would feel a lot better if this market would correct itself for awhile or at least level out.”
Treasury bond yields jumped as reports showing improved retail sales and rising consumer credit stoked inflation fears and pessimism that interest rates would continue to drop.
At the close, the yield on the bellwether 30-year bond was 6.58%, up from Monday’s 6.51%. Its price, which falls when yields rise, was down 1 1/32 point, or $10.31 per $1,000 in face value.
Bonds were pressured by two weekly reports on consumer spending. Johnson Redbook Service said retail sales were up 7.3% in the week ending July 8 compared with the same week last year. A survey of chain-store sales by Mitsubishi Bank Ltd. and Wertheim Schroder & Co. showed a 7.9% gain from last year.
In addition, the Federal Reserve Board said that consumer credit grew for the 24th-straight month in May, rising $11.5 billion, an annual rate of 14.6%.
Apart from corporate developments and the bond market, investors watched the dollar for signs that its recent revival is continuing.
Currency dealers also turned to the dollar in response to news that Russian President Boris Yeltsin has been hospitalized with heart problems. In times of international political uncertainty, the dollar historically attracts investors looking for safety.
The dollar closed in New York at 87.56 Japanese yen, up from 86.93 Monday and at 1.406 German marks, up from 1.3953.
Among Tuesday’s highlights:
* Shares of the big producer of printing papers, packaging and forest products suffered amid an industrywide selloff touched off by reports that prices in the sector have appreciated enough. International Paper slumped 4 1/8 to 86 5/8.
* Motorola fell 1 7/8 to 68 3/8 amid nervousness that the company would fail to meet earnings expectations for the second quarter. After the market closed, Motorola reported quarterly earnings of $481 million, or 79 cents a share, above Wall Street expectations of 73 cents a share.
* Chrysler shed 7/8 to 49 1/8 after Monday’s announcement that it planned to take a charge in the second quarter that will cut estimated earnings by about half.
* Salomon fell 3 5/8 to 37 1/4 after forecasting an unexpected loss for the quarter. Traders said the most likely culprit was a losing bet made on silver earlier this year.
* Penn Traffic tumbled 7 3/4 to 26 3/8 after forecasting quarterly results would fall below year-ago results.
DEP Corp. Class A shares tumbled 1 to 1 7/8 after announcing that it is exploring strategic alternatives which may include, among other things, a business combination, sale of assets, strategic investment or refinancing.
Overseas, Tokyo stocks ended higher with the Nikkei average rising 345.53 points to 16,588.19. Frankfurt’s 30-share Dax average surged 22.64 points during floor trading to end at 2,201.90, a new high for the year, while London’s Financial Times 100 share average finished 9.0 points up at 3,464.0.
