The stock market gave up a sharp early rally to close mixed on Monday, hurt by a fresh selloff in leading technology stocks and a jump in commodity prices.
In the bond market yields closed lower but up from their best levels of the day, as traders awaited the Federal Reserve Board’s policy meeting today.
The Dow Jones industrial average, which was up about 40 points in the morning as bonds rallied, relinquished all of its gains and ended down 2.82 points at 4,614.78.
Most of the Dow’s reversal was explained by a plunge in shares of IBM, which dropped 4 5/8 to 106 3/4. As the highest-priced stock in the Dow IBM’s moves have the biggest effect on the index.
IBM fell with other major technology stocks after several analysts cut earnings estimates for computer-chip giant Intel.
Intel shares, rocked by the estimate cuts, plummeted 4 5/8 to 60 1/4 on huge volume of 21.9 million shares on the Nasdaq market.
Merrill Lynch analyst Thomas Kurlak trimmed his 1995 earnings estimate for Intel to $4.10 a share from $4.23 and also cut his outlook for 1996 to a range of $4.80 to $5 a share from $5.
Analysts at brokerages Oppenheimer and Alex. Brown also reduced their Intel estimates.
Profit margins “are under slight pressure from a greater mix of [computer] board products, which have lower margins than chips,” Kurlak told clients in a report. Still, he maintained his medium-term “above average” recommendation on Intel and his long-term “buy” opinion.
But sellers pounded the stock anyway. With technology shares having posted stunning gains this year, profit-takers are ready to panic at the slightest hint of bad news, traders say.
Some analysts said tech issues also were hurt Monday by worries about a new round of price cuts among personal-computer makers.
In any case, the tech slump sliced 11.58 points off the tech-heavy Nasdaq composite index, to 1,019.70. The index hit a record high on Friday.
The stock market also felt pressure from rising commodity prices. A key measure of commodity prices hit a five-year high on Monday, raising inflation concerns.
Still, in the broad stock market more stocks closed up than down. Winners topped losers by 13 to 9 on the NYSE. Trading was active.
Analysts said a better test of investors’ conviction will come today, if another rise in commodity prices shakes the bond market.
On Monday bond yields were modestly lower, though the rally faded late in the day. The 30-year Treasury bond yield closed at 6.87%, down from 6.90% Friday.
The Fed, meeting today, isn’t expected to change interest rate policy. The central bank cut short-term rates slightly in early-July, but most analysts say the economy doesn’t appear in need of additional cuts to keep its revival on track.
Elsewhere, the dollar took a break on Monday after its recent strong gains. The dollar closed at 96.87 Japanese yen in New York, down from 97.40 Friday, and at 1.4767 German marks, up from 1.4752.
Among Monday’s highlights:
* Tech shares tumbling with IBM and Intel included Compaq, down 2 3/8 to 50 1/4; Hewlett-Packard, down 3 1/2 to 80; Microsoft, down 2 5/8 to 94 1/2; Dell, down 4 1/4 to 71 7/8; and Seagate, off 2 1/8 to 46 1/2.
Among semiconductor firms, Cypress slumped 5 5/8 to 49 1/8, Texas Instruments dropped 5 1/2 to 73 3/4 and Motorola gave up 2 7/8 to 74.
* Many telecommunications stocks also declined. Qualcomm sank 4 5/8 to 47 3/8, Tellabs lost 1 5/8 to 46 3/8 and ADC Telecomm dropped 1 1/2 to 39 3/4.
But AT&T; jumped 1 3/8 to 53 1/2 on reports of its plans to get back into the local phone business.
* Also on the plus side, drug stocks rose in the wake of the weekend merger announcement involving Upjohn and Sweden’s Pharmacia. Upjohn gained 1 1/8 to 40 3/4. Other drug stocks rising included Lilly, up 1 to 77 3/8; Pfizer, up 7/8 to 49; and Biogen, up 2 5/8 to 56 3/4.
* Oil stocks were mostly higher as crude prices jumped. Amoco gained 1 to 64, Unocal added 1/4 to 27 5/8 and Mobil gained 5/8 to 96 7/8.
Overseas, Tokyo’s Nikkei-225 index fell 161.44 points to 17,871.05.
But stocks firmed in Europe. In London, the FTSE 100-share index jumped 25.9 points to a new record 3,535.7, finally topping its 1994 peak.
In Mexico, the Bolsa index eased 1.85 points to 2,485.10.