FINANCIAL MARKETS : Oversupply Concern Chips Away at Techs
Stocks fell for the second consecutive session Tuesday as worries about an oversupply of computer chips sparked heavy selling of high-technology issues.
The Dow Jones industrial average, which dropped 16.98 points to 4,797.03, and Standard & Poor’s 500 index both fell about a third of a percentage point, but the Nasdaq composite index, laden with high-technology stocks, was hit much harder, tumbling 18.24 points, or 1.72%, to 1,043.90.
Treasury bond yields rose as investors nervously watched for signs that Washington lawmakers are getting closer to an agreement with President Clinton about raising the federal debt ceiling. Bond traders were also unnerved by comments from Federal Reserve Board Chairman Alan Greenspan that the Fed needs to remain vigilant about inflation, which is often taken as code that the central bank isn’t likely to ease interest rates soon. A Fed policy-making committee meets on rates Nov. 15.
The speech “fanned the sentiment” that rates won’t change,” said Dana Johnson, head of market analysis at First Chicago Capital Markets.
The yield of the Treasury’s main 30-year bond edged up to 6.31% from 6.29% late Monday.
Most bond analysts expect the government to work out a deal, but the longer it takes, the more Treasury auctions will be delayed. That could lead to a glut of supply dumped into the market over a shorter-than-normal period, which would be more difficult for dealers to distribute and could drag down prices.
“The more they postpone it, the bigger the mess next week,” said Dan Seto, economist at Nikko Securities International Co. “There’s going to be a flood of securities and it’ll be a lot of work for dealers to try to distribute them.”
On the stock market, the flight from high-tech issues began after Cirrus Logic warned that profits were shrinking because of slower orders for computer chips. Tech stocks have fueled much of the rally that has driven stocks up about 25% so far this year.
Cirrus, the second-most active issue on Nasdaq, fell 12 3/4 to 28, a drop of 31%.
Traders said the selling was fueled by the Cirrus announcement and comments and downgrades by a number of analysts, including Thomas Kurlak at Merrill Lynch & Co. “At this point, we do not see any compelling reason to be exposed to the semiconductor market in the near-term,” Kurlak told clients, according to two traders who read his research comments.
“It appears DRAM [Dynamic Random Access Memory chip] supply is catching up with demand,” he said. Market analysts noted that chip makers have been adding manufacturing capacity all year to meet strong demand.
Among market highlights:
* Among other tech issues, Intel tumbled 4-7/16 to 66 3/8, Micron Technology sank 3 3/8 to 60 3/4, International Business Machines slid 1 3/4 to 98 3/4, Microsoft lost 4 3/8 to 93, and Hewlett-Packard fell 3 3/8 to 87 7/8.
Bucking the trend was Apple Computer, which rose 1 1/2 to 39 5/8 on renewed talk it might be bought by Hewlett-Packard. Both companies declined comment.
* Several new offerings did well. Arbor Software more than doubled to 39 1/4 after being priced at 17, Pete’s Brewing, a specialty brewer, soared 7 1/4 to 25 1/4, Ross Technology rose 3/4 to 14 3/4 and Perclose added 1 1/2 to 14 1/2.
* Value Health, which provides managed-care programs, slumped 2 1/2 to 23 after reporting lower-than-expected third-quarter earnings. The company said fourth-quarter profits will fall below analysts’ forecasts.