FINANCIAL MARKETS : Stocks Close Higher Despite Tech Selloff
The stock market managed to finish mostly higher on Friday in the face of fresh weakness in technology issues.
But some third-quarter corporate earnings warnings issued after the market closed could bode poorly for next week.
The Dow Jones industrial average added 6.50 points to 4,769.21, though it gave up most of a 20-point midday gain.
Winners edged loser by 12 to 10 on the Big Board and by 18 to 16 on Nasdaq, as the market continued to stabilize after heavy profit-taking early in the week.
Stocks showed little reaction to the government’s September employment report, which appeared to confirm that the economy is growing, but only modestly.
In the bond market yields were virtually unchanged for the day, with the 30-year Treasury bond yield ending at 6.42%, the same as Thursday and a 20-month low. The bond market has rallied sharply in recent weeks, betting that a continued sluggish economy will restrain interest rates and inflation.
For stocks the main focus Friday was the corporate earnings outlook, and during the session investors got good and bad news.
Aluminum giant Alcoa reported third-quarter earnings of $1.27 a share, up from 39 cents a year ago and better than expected. The stock closed at 53 1/8, up 1 1/2 after being up as much as 3 1/8.
“This is the first major corporation to report” earnings, said Larry Wachtel, analyst at Prudential Securities. So the news may have calmed some investors’ fears that profits will be disappointing across a broad spectrum of companies.
But telecommunications-equipment supplier DSC Communications stunned investors with its warning that quarterly results will be below expectations. DSC shares plummeted 8 to 44 3/8 and helped undermine tech stocks in general.
Moreover, after the market closed several other well-known tech companies, including software firms Novell and BMC Software, warned that quarterly results won’t meet expectations. Novell eased 3/8 to 17 3/8 during trading and BMC was off 1 to 43 1/4, but both are expected to plunge on Monday.
Analysts say that another slide in tech shares, after their recent selloff, could spark a much broader market decline in the weeks ahead if nervous investors rush to lock in profits from this year’s rally.
Among Friday’s highlights:
* Tech stocks rallied early in the day after Merrill Lynch raised its short-term rating on computer chip leader Intel to “buy” from “above average.” But sellers returned in droves after DSC Communications’ earnings warning.
Intel added 1 1/8 to 62 after trading as high as 63 3/8. Among other tech shares, Compaq fell 2 1/8 to 46, Micron Technology dove 3 7/8 to 70 5/8, Motorola slid 3 1/8 to 68 3/4 and Tellabs plunged 3 1/4 to 37 1/4.
On the plus side, Sybase shot up 2 1/4 to 33 7/8, chip maker Cyrix rose 2 3/4 to 42 1/2 and California Amplifier jumped 2 to 22.
* Some industrial shares rallied with Alcoa. Potash jumped 1 3/8 to 63 3/8, Monsanto added 1 1/2 to 99 1/2 and Cummins Engine rose 1 to 37.
* Some investors continued to seek refuge in stocks of classic consumer-growth companies whose earnings gains tend to be more reliable than industrial and tech companies’. Toy maker Hasbro gained 3/4 to 30 3/4, Procter & Gamble jumped 1 1/8 to 80 1/8 and Philip Morris was up 7/8 to 85 1/2.
In Mexico City stocks rallied sharply for a second day after plummeting early in the week. The Bolsa index gained 61.54 points to 2,409.19 as government officials tried to boost confidence in the 1996 economic outlook.
European markets were mostly lower, but Tokyo’s Nikkei-225 index rose 285.87 points to 18,506.28.
Japanese stocks got some support from the dollar, which was higher against the Japanese yen ahead of this weekend’s meeting of the big seven industrial countries.
In New York trading the dollar ended at 100.53 yen, up from 99.40 on Thursday.
