FINANCIAL MARKETS : Markets Calm, Aided by Tech Stocks, Earnings
Stocks stabilized Thursday, recovering a little of the turf that was lost in Wednesday’s sharp selloff.
Higher prices for most software and personal computer stocks plus stronger-than-expected earnings from major companies such as Exxon, General Motors, Bausch & Lomb and Bank of Boston helped calm the market.
After waffling most of the day, the Dow Jones industrial average ended 12.68 points higher at 4,641.55, enough to incite applause and a joyful outburst from the floor of the New York Stock Exchange at the closing bell.
The technology-weighted Nasdaq composite index gained back 7.74 points of Wednesday’s 57.41 loss, ending at 960.57.
On Wednesday, the Dow plummeted 133 points in a jumpy afternoon retreat before recovering a bit and closing down 57. Traders had worried that the previous day’s rout might signal the beginning of the end of a long bull run.
“I think we came back nicely,” said Larry Wachtel, market analyst at Prudential Securities. “The fear was that [Wednesday’s drop] would be a trigger to people running amok on the down side. But our evidence is that the individual investor is hanging tough. People are sophisticated.”
The earnings reports were a psychological boost. “Earnings are coming out ahead of expectations on balance still,” said Gail Dudack, market strategist at UBS Securities. “That has to be pretty amazing, given how weak the economy was in the second quarter.” However, the soft drink category was an exception, as Coca-Cola and PepsiCo fell slightly after Coke reported earnings that did not exceed expectations.
Analysts said the market also rallied ahead of Friday’s expiration of stock options and index options, known as a “double witching,” that requires investors to cover short positions.
Many were not alarmed by this week’s selloff. “The market had been overbought, so Wednesday helped to put things back into line, but the market will stay erratic,” said Eugene Peroni, an analyst at Janney, Montgomery Scott.
Mutual fund companies said retail investors have flooded phone lines this week but withdrew little money. Meanwhile, assets of the nation’s 690 retail money market mutual funds rose by $4.79 billion to $503.78 billion for the week ended Wednesday, the Investment Company Institute said Thursday.
Volume on the New York Stock Exchange was heavy at nearly 381 million shares, but still below the 482 million logged Wednesday, the third-biggest ever on the Big Board and the busiest day ever in terms of trading on all U.S. stock markets.
Advancers led decliners by about 12 to 7 on the Big Board. The Dow transportation index, considered by some to be a leading economic and market indicator, gained more than 1.5%.
The Wilshire Associates Equity index--the market value of NYSE, American and Nasdaq issues--was 5,438.809, up 28.231, or 0.52%.
Treasuries ended almost unchanged but were seesawing most of the day, with yields dropping when the Labor Department reported that the number of American workers filing first-time claims for jobless benefits increased by 18,000 last week, the highest level in nearly three years, then recovering as traders sold bonds.
Yields dropped back briefly again after the Federal Reserve Bank of Philadelphia reported that manufacturing activity in the mid-Atlantic region declined again in July.
The dollar rallied against most major currencies Thursday amid speculation that central banks may intervene to support the U.S. currency. In late New York trading, the dollar was quoted at 1.3808 German marks, up from 1.3758 on Wednesday. The dollar was also changing hands in New York at 88.20 yen, up from 87.33.
Among the highlights:
* Investors went shopping among the technology shares that had been sold so aggressively the previous two days. That helped keep the broad market indexes aloft for most of the session. Microsoft, a big loser Wednesday, gained 1 5/8 to 96 1/8. But Intel, another of Wednesday’s big losers, ended 3/8 lower at 64 7/8. On the Big Board, IBM rose 2 7/8 to 104 1/8, Compaq added 3 1/2 to 48 1/2 after reporting good second-quarter earnings and Micron Technologies ended unchanged at 56 3/4.
* The stock market’s recovery was aided by strength in the Baby Bells. Pacific Telesis gained 7/8 to 26 7/8, Ameritech was up 1 7/8 to 48 3/4, BellSouth rose 1 3/4 to 65 3/4 and Nynex added 1 1/4 to 41 5/8.
* Earnings reports affected several major stocks, including Ford Motor, which slipped 1 1/8 to 29 following a disappointing earnings report late Wednesday. But General Motors advanced 1 to 49 5/8. GM said its second-quarter net income rose 18% to $2.39 per share, compared to $2.23 a share a year earlier, as domestic auto sales profits improved despite lower sales volume.
* Other major moves yesterday included Caterpillar, which dropped 1 5/8 to 67 1/2 after Lehman Bros. downgraded the stock, citing a decline in the domestic economy. Conrail rose 2 3/4 to 62 3/8 and Burlington Northern gained 2 5/8 to 68.
The Interstate Commerce Commission approved a merger between Burlington Northern and Santa Fe Pacific Corp., which will create the largest U.S. railroad.
* Foreign stock markets posted mixed results following Wall Street’s fall Wednesday. The FTSE-100 index in London eased 0.14%, but Frankfurt’s DAX index added 0.07%, and the Nikkei index in Tokyo rose 0.19%.
* Dwindling global supplies of wheat, plus a reported surge in U.S. wheat exports, boosted prices to three-year highs Thursday. September wheat rose 10.25 cents to $4.65 a bushel.
The wheat market has extended its rally, which has been based on a 20-year low in worldwide wheat stocks and fears that bad weather has reduced this year’s U.S. crop.
