FINANCIAL MARKETS : Profit Taking in Tech Shares Sends Stocks Into Retreat
Stock prices wilted Tuesday as heavy profit taking in technology shares halted the market’s recent run into record territory.
Weakness in the bond market, which grew pronounced in late trading, also had a depressing influence on the market.
The Dow Jones industrial average finished 50.01 points below its record of 4,686.28 reached Monday.
Investors eager to collect some of the profits amassed during this year’s dramatic advance in stock prices targeted technology issues in particular. But the urge to cash in winnings affected a wide range of stocks.
The downtrend was intensified by periodic rounds of computer-guided program trading, which was curbed when the deficit in the Dow swelled to 50 points.
Virtually all measures of stock performance suffered setbacks.
The Nasdaq bore the brunt of the selling, with prices receding as technology stocks stumbled against concerns about the outlook for computer and related companies.
Nasdaq’s composite index tumbled 17.36 points to 988.53, retreating back below 1,000 after crossing that mark for the first time Monday.
The New York Stock Exchange composite index fell 1.63 points to 298.38, Standard & Poor’s 500 fell 4.26 points to 558.46, and the American Stock Exchange market value index lost 2.18 points to 516.81.
Losers outnumbered gainers by about 2 to 1 on the NYSE, where volume expanded to 372.19 million shares, down from Monday’s 322.55 million shares.
Investment professionals regarded Wall Street’s setback as a natural reaction to this year’s almost uninterrupted rally.
“The market took a necessary rest and correction,” said Ned Riley, chief investment officer of the Private Bank, a Bank of Boston division. “The interesting point is that the group that has been the strongest in leadership is leading the correction.”
An extended and powerful rally in tech stocks had been providing much of the fuel propelling the Nasdaq, the Big Board and other major exchanges this year.
But a warning flag about the computer industry’s outlook was raised in the quarterly earnings report released Tuesday by industry bellwether International Business Machines Corp.
In reporting impressive second-quarter results, Louis V. Gerstner Jr., IBM’s chairman and chief executive, suggested they will be hard to match during the rest of the year.
IBM earned $1.7 billion in the second quarter, about 2 1/2 times its profit from the same period a year ago, as the world’s biggest computer company enjoyed a healthy 14% jump in sales. Despite the strong quarterly performance, IBM stock closed at 107, off 1/4.
Treasury bond yields shot higher for a second consecutive session on further suggestions that the nation’s economy is rebounding from its 1995 slowdown.
The yield on the benchmark 30-year bond jumped to 6.76% from 6.67% on Monday, while its price, which moves in the opposite direction, dropped 1 5/16 points, or $13.13 per $1,000 in face value.
Analysts described near-panic conditions late in the day as investors and traders rushed to dump bonds after an afternoon report of unexpectedly strong retail sales early this month.
Among Tuesday’s highlights:
* Shares of semiconductor, software and other computer companies came under heavy selling pressure. Microsoft slumped 7 to 102 and led the Nasdaq list of active stocks.
* Texas Instruments reported better-than-expected earnings, but it fell 7/8 to 155 7/8, while Intel lost 3 3/16 to 73 1/4. Intel reported earnings slightly below expectations after the market closed.
* Eastman Kodak fell 3 7/8 to 58 3/4 despite the company’s report of a higher second-quarter profit.
* Better-than-expected earnings boosted Chemical Banking’s shares 1 1/4 to 49 5/8.
* Cordis soared 10 3/4 to 72 3/4 on rumors that it may be acquired by Johnson & Johnson.
* Werner Enterprises fell 2 1/2 to 20 after it was downgraded by Alex. Brown & Sons.
Markets overseas also experienced selling. In Tokyo, the key Nikkei 225-share average lost 268.12 points, or 1.59%, to end at 16,574.35. Frankfurt’s 30-share DAX average finished down 6.62 points at 2,192.22, while London’s 100-share FTSE average closed at 3,420.7, down 21.9 points.
