FINANCIAL MARKETS : Dow Crosses 5,000 Level but Falls Back in Profit Taking : Markets: Meanwhile, technology stocks tumble as investors worry about weak Christmas season sales.
The Dow Jones industrial average crossed the historic 5,000 mark for the first time on Monday, but fell back as investors took profits. Meanwhile, high-technology stocks tumbled on concern about consumer demand for computers during the Christmas season.
The Dow ended with a loss of 6.86 points at 4,983.09, retreating from the day’s record high of 5,003.68.
“When you go back in history, the millennium marks were tough,” said David Shulman, chief equity strategist at Salomon Bros. “It took over a year between crossing 4,000 intra-day and closing above 4,000. Five thousand is a big millennium and it’s been a struggle.
“It’s a psychological symbol that seemed so far off just a year ago and is a validation of the bull market,” he said.
The Dow index last week gained 120 points, setting four record-closing highs and boosting its gain for the year to 30%. It rose above 4,000 in intra-day trading in February, 1994, but was unable to close above 4,000 until Feb. 23 of this year.
On Monday, technology issues were hardest hit on considerable profit taking. Influencing the market was a comment by SoundView Financial Group analyst Richard Whittington in the latest issue of Barron’s in which he said that prices for computer memory chips are falling abruptly.
“Technologies have just been awful across the board,” said Greg Riley, senior Nasdaq trader at CS First Boston. “It’s been a very ugly day.”
Some investors are “betting that the consumer is not going to be there for electronic products in the all-important fourth quarter,” said Lary Aasheim, technology analyst and money manager at Corestates Investment Advisors, which manages $10 billion in assets. “Especially in PCs, you won’t really know what the verdict is until after the Christmas season is over, as to whether or not PC demand can be sustained.”
Dow component IBM fell 2 1/8 to 93. On the Nasdaq, Applied Materials, fell 3 7/8 at 42 3/4, Sun Microsystems, dropped 5 7/8 at 81 5/8, and Cirrus Logic, slipped 1 1/4 at 24 3/4.
The selloff pulled down the Nasdaq composite index 15.56 to 1,3029.47.
A chorus of cheers on the floor of the New York Stock Exchange rose when the Dow first rose over 5,000 at 10:03 a.m. EST. It later surged to over 5,003 in midafternoon trading before turning downward to close at 4,983.09, a 6.86 slide from Friday’s record-breaking levels.
Many investors and traders said last week’s stock market advance, during which the Dow industrials notched a 2.46% gain and posted four records, means that prices already reflect the most favorable outlook possible for both the economy and slower growth in government spending, and that prices are now more likely to fall than rise.
“I vote that 5,000 could be some sort of reasonable resistance” point for the stock market as a whole, said Edward Laux, head trader at Chicago Corp. With the Standard &Poor;’s 500 ahead by 30% this year, “stocks are kind of overextended.”
Hersh Cohen, who manages the $1.9-billion Smith Barney Appreciation Fund, also sees trouble ahead for the stock market.
“A year ago, expectations were very low and interest rates were very high,” Cohen said. “Today, expectations are very high and interest rates are very low. So if there’s going to be a surprise, which way do you think it is going to go?”
Declining issues led advancers by nearly 6 to 5 on NYSE, with volume totaling 335.5 million shares vs. 437.20 million on Friday. Bond yields rose slightly.
The dollar ended lower Monday after initially rallying when markets got word that President Clinton and Republican congressional leaders had agreed on some general principles on how to cut the federal deficit.
But it erased all gains, and then some, in U.S. trade when players realized that the government still had a long way to go before reaching a comprehensive budget agreement.
“Overseas, they listened to the headlines yesterday of politicians announcing a budget agreement and they were buying dollars like crazy,” said Dennis Pettit, manager of foreign exchange at Long Term Credit Bank of Japan in New York.
The dollar fell to 101.25 yen Monday from 102.15 late Friday and edged down to 1.4065 marks from 1.4073.
Among market highlights:
* Helping support the Dow industrial index were Disney, gaining 1 at 60 1/4, Eastman Kodak, ahead 1 3/8 at 70 1/4, and Texaco, up 1 at 72.
* Caterpillar, also a component of the Dow industrials, edged up 1/8 to 55 1/8 after surging to 57 during the day. The Illinois-based maker of construction equipment and the United Auto Workers said they made progress in talks to end a 16-month strike against the company. About 9,500 UAW workers walked off the job in June, 1994.
In overseas trading, the Nikkei index in Tokyo rose 1.3%, the DAX index in Frankfurt gained 0.8% and the Financial Times-Stock Exchange 100 in London up 0.5%.
Natural gas prices surged to 17-month highs Monday, driven by a November chill that is draining the supply of gas in storage for the upcoming winter.
Analysts said forecasts this week for more cold in the eastern half of the nation coupled with storage supplies that are below year-ago levels have underpinned the market. A Reuters survey of 30 companies found stocks were 4% lower than a year ago at 2.13 trillion cubic feet.
November natural gas jumped 13.3 cents to $2.157 per 1,000 cubic feet, the spot contract’s highest level since July 1, 1994, at the New York Mercantile Exchange.
