FINANCIAL MARKETS : Bond Yields, Earnings Fears Drive Selloff
The stock market pulled back modestly but broadly on Tuesday as disappointment over corporate earnings reports and a rise in bond yields spurred profit-taking.
The Dow Jones industrials lost 21.79 points to 4,680.60, and losers topped winners by 13 to 10 on the New York Stock Exchange in active trading.
Almost all broad stock indexes lost ground.
Traders said a selloff in paper and lumber stocks paced the market’s decline, as investors dumped those shares in the wake of second-quarter earnings reports.
Record earnings from both International Paper and Champion International failed to impress Wall Street, triggering the selloff. International Paper plunged 4 1/8 to 86 5/8 and Champion dropped 2 3/4 to 56 1/4.
Some analysts said the paper stocks’ slide merely reflected some investors’ desire to lock in gains. The stocks have zoomed recently. Also, a Wall Street Journal story on Tuesday questioned the industry’s growth prospects.
But David Butler, head of equity trading at Kemper Financial Services in Chicago, noted that “there’s some general concern out there about earnings and a lot of nervousness to see who’s going to come through with the numbers, and if they do, will it be enough?”
The bond market was no help to stocks. Treasury bond yields rose as reports showing improved retail sales in early July and rising consumer credit in June stoked worries that economic growth may quickly rebound.
The yield on the bellwether 30-year T-bond closed at 6.58%, up from Monday’s 6.51%.
“In order to sustain this [bond] rally in here, you need some more weak economic data,” said Eric Cheung, who oversees $2.8 billion in fixed-income investments at Wilmington Trust Corp. “If the market does not see that, it’ll be really easy for [yields] to back up” perhaps a quarter of a percentage point, he said.
Among Tuesday’s highlights:
* Paper stocks falling sharply with International Paper included Boise Cascade, off 3 to 42 7/8; Stone Container, down 7/8 to 23 1/2; and Georgia-Pacific, off 2 1/8 to 92 7/8.
* In other earnings-related trading, Chrysler shed 1 1/8 to 48 7/8 after Monday’s announcement that it planned to take a charge in the second quarter that will cut estimated earnings by about half.
Also, brokerage Salomon plunged 3 5/8 to 37 1/4 after warning of an unexpected loss in the quarter.
* On the plus side, Motorola rebounded from an afternoon decline after reporting earnings above expectations. The stock added 3/8 to 70 1/2 after trading as low as 68.
* Procter & Gamble gained 3/4 to 69 7/8 after raising its quarterly cash dividend to 40 cents a share from 35 cents.
* Drug stocks were strong. Merck added 1/2 to 49 1/2, Bristol Myers gained 1 to 68 1/4 and Johnson & Johnson rose 1 1/8 to 66 3/8.
* Among Southland issues, Logicon rocketed 2 1/4 to 47 1/4 after winning an information processing contract with the Internal Revenue Service.
In foreign trading, 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.
But Mexican stocks were hit by profit-taking, following the U.S. market’s lead. The Bolsa index fell 51.25 points to 2,503.01 after several days of big gains.
