FINANCIAL MARKETS : Stocks Fall, Budget Drama Plays On
Lingering jitters over the federal budget impasse and another steep decline in key technology issues pulled the stock market lower on Tuesday.
The Dow Jones industrial average eased just 1.09 points to 4,871.81, but the broad market was much weaker. The tech-heavy Nasdaq composite index sank 17.84 points, or 1.7%, to 1,040.62.
Meanwhile, the bond market closed mixed as the Treasury auctioned $57.6 billion in short-term bills, the first stage of Treasury Secretary Robert E. Rubin’s plan to reliquefy government coffers and stave off the threat of default.
With Congress and the Clinton Administration unable to agree on bills authorizing government spending and increasing the $4.9-trillion federal debt limit, the Treasury Department moved ahead to temporarily draw on two huge government-run retirement funds for borrowing power.
By tapping the civil-service trust funds Rubin can raise needed funds to pay off maturing Treasury debt despite the political impasse.
All told, the Treasury will raise $137 billion this week and next to pay off principal and interest due Wednesday and Thursday and to replenish government coffers.
On Tuesday the Treasury sold $57.6 billion in nine-day and 36-day bills. Some traders said the level of bidding for the bills was relatively poor, reflecting Wall Street’s concerns about the intensity of the budget battle between President Clinton and Congress.
The Treasury will sell 52-week bills today, and is scheduled to make $25 billion in interest payments on the federal debt.
In the bond market on Tuesday yields were little changed, with the yield on the benchmark 30-year bond rising slightly to 6.28% from 6.27% Monday.
Some analysts worry that investors will begin to fear that the Federal Reserve Board won’t cut short-term interest rates at its Dec. 19 meeting, as is now widely expected.
“Resolution of the [budget] problem is going to be a more drawn-out process, and that raises the question of whether the Fed’s going to be able to ease interest rates in December,” said Kenneth M. Lynch, who manages $200 million in bonds at Pitcairn Trust Co. in Jenkintown, Pa.
The Fed meets today, but it isn’t expected to make any changes to interest rates with the budget fight raging.
Another brewing problem for bonds: Investors are unsure about which government statistics will be released this week. The government has sent thousands of federal workers home, and it was unclear whether federal statisticians were among the nonessential personnel.
Without normal economic data, investors will be unable to fully gauge the economy’s strength, or lack of it.
Those concerns may have been more strongly reflected in the stock market on Tuesday.
Losing stocks outnumbered winners by 13 to 9 on the New York Stock Exchange and by 22 to 14 on Nasdaq.
Indeed, selling was much more pronounced than the Dow’s minor loss would suggest. The Dow was supported partly by 3M, which leaped 2 5/8 to 61 5/8 after announcing a restructuring.
Technology stocks were routed after an influential analyst downgraded key semiconductor issues, citing worries about rising supplies of computer chips.
“Technology stocks have been rallying for most of the year,” said Steven Goldman, a market strategist at Weeden & Co. in Greenwich, Conn. “Then we have these downgrades, and that takes the winds out of the sail.”
Among Tuesday’s highlights:
* SoundView Financial analyst Richard Whittington changed his short-term ratings on Micron Technology and Texas Instruments to “hold” from “buy” and slashed earnings estimates. He said prices for computer memory chips appear to be falling faster than expected.
Whittington now expects Micron to earn $10 a share in fiscal 1997, down from his previous estimate of $17. Micron shares plunged 4 3/4 to 56 7/8 and Texas Instruments dropped 2 to 60 1/4.
* Other tech stocks falling sharply included Intel, down 2 to 65 1/8; Sun Microsystems, down 3 1/4 to 81 5/8; Cabletron Systems, off 2 1/4 to 77 5/8; Digital Equipment, down 3 3/4 to 53 3/4, and Cisco Systems, which fell 4 3/8 to 81.
* Airline stocks weakened after United Airlines parent UAL said it won’t buy USAir. USAir plunged 3 3/4 to 11 5/8. Also falling were Continental, off 2 3/8 to 38, and Delta, down 7/8 to 69. But UAL gained 2 3/8 to 185.
* Financials stocks were broadly lower. Merrill Lynch fell 1 to 56 7/8, Morgan Stanley slipped 1 to 85 3/4, Chase Manhattan was off 1 3/4 to 57 3/8 and BankAmerica dropped 2 3/8 to 58 7/8.
Also, Wells Fargo shares slid 4 1/8 to 206 1/4 amid concern over its bidding war with First Bank System for First Interstate. First Bank lost 3/4 to 52 1/4 while First Interstate shed 2 1/2 to 130 7/8.
* On the plus side, drug stocks gained as some investors sought dependable growth issues. Johnson & Johnson gained 1 3/8 to 83 1/8, Warner-Lambert added 3/4 to 90 3/8 and Merck rose 3/4 to 59 1/4.
* Chemical stocks also rose, perhaps helped by 3M’s announcement. Dupont surged 2 7/8 to 63 3/4 and Air Products and Chemicals jumped 1 1/4 to 56 5/8.
* Home Depot gained 1 5/8 to 43 3/8 after posting better than expected third-quarter results. But Wal-Mart sank 1/2 to 23 3/8 on a lower-than-expected profit report.
Overseas, London’s FTSE-100 index ended up 11.1 points at 3,547.9, while Tokyo’s Nikkei ended up 13.05 points at 17,802.51.
Mexico City’s Bolsa index fell 12.54 points, or 0.56%, to 2,241.53 as the peso went on another wild ride.
In current trading, the dollar weakened on concern about the budget stalemate. In late trading, the dollar slipped to 101.66 Japanese yen from 101.90 Monday.
