FINANCIAL MARKETS : Stocks Tumble as Investors Take Profits
U.S. stocks posted their biggest drop in six weeks as investors, nervous about a rise in interest rates, sold equities to take profits from a record-shattering rally.
After three straight record days, the Dow Jones industrial average and Standard & Poor’s 500 index dropped as shares of banks--among the year’s best performers--retreated and some investors decided that this year’s stock market rally has been built on lofty profit expectations that may not be met. The Dow declined 39.74 points to 5,159.39.
“This is nearly a perfect environment for equities--how can you top it?,” said Jim Griffin, investment strategist at Aeltus Investment Management Inc., which oversees about $34 billion. “The answer is, you can’t.”
Declining issues led advancers by nearly 9 to 5 on the New York Stock Exchange, where volume was moderately heavy at 381.49 million shares, down from Wednesday’s pace.
Traders said the drop in prices was magnified by computer-driven sell programs. The blue-chip index was down more than 50 points, prompting the New York Stock Exchange to restrict program trading.
Broad-market indexes were pounded lower, primarily by aggressive selling of Internet-related and other technology stocks, traders said. The Standard & Poor’s 500-stock index dropped 4.01 points to 616.17 and the Nasdaq composite index was off 8.56 points at 1,053.17.
Stocks also fell as the 30-year Treasury yield rose to 6.07%. Stock and bond investors are looking to government unemployment figures for November, due out Friday, for some indication whether the Federal Reserve Board is likely to lower interest rates at its policy-setting meeting Dec. 19.
“The long-bond yield is stuck at 6%,” said Larry Rice, chief investment officer at Josephthal, Lyon & Ross. “Any potential cut in interest rates . . . is already” reflected in bond prices.
Also Thursday, one-year Treasury bills were auctioned at the lowest level in 18 months.
The average discount rate was 5.06%, down from 5.15% at the last auction Nov. 15. Offering a possible early peak at the jobs data, the Labor Department said first-time claims for jobless benefits shot up by 14,000 last week. But analysts said it is a rebound from a shorter filing period a week earlier. The four-week moving average, which many analysts consider more reliable, dropped by 1,000.
Many predict that Friday’s figures will show that 150,000 jobs were created in November, far less than the average growth a year ago. The jobless rate is forecast to remain at 5.5%.
Among Thursday’s highlights:
* Financial and utility stocks, which are sensitive to changes in interest rates, fell.
Citicorp dropped 2 1/2 to 70. Chase Manhattan lost 2 1/2 to 61 1/2, Chemical Banking dropped 2 1/2 to 59 7/8, and BankAmerica was off 2 at 66 1/2. The Dow Jones utility average lost 2.77 points, or 1.25%, to close at 218.36.
* General Motors fell 1 3/8 to 49 5/8 after Goldman Sachs reduced its 1996 earnings estimate for the world’s largest auto maker.
* Comdial said earnings won’t meet expectations and shares of the telecommunications equipment company fell 1 1/64 to 7 3/4 after it said fourth-quarter earnings will be about half the amount analysts had expected.
In overseas trading, the Nikkei-225 index in Tokyo rose 1.81% and the DAX index in Frankfurt rose 0.66%. But the FTSE-100 index in London declined 0.64%.
The dollar rose Thursday after Germany’s central bank president called for a stronger U.S. currency and the French government showed resolve in its standoff with striking civil servants. Bundesbank President Hans Tietmeyer said the dollar did not reflect the full economic potential of the United States and hoped the mark would give back its recent gains against other currencies, particularly the greenback.
In late New York trading, the dollar edged up to 1.4470 marks, from 1.1465 marks on Wednesday. It also slipped to 101.45 Japanese yen, from 101.60 Japanese yen, but most attention was focused on Europe.
