FINANCIAL MARKETS : Stocks Stage Broad Retreat; Techs Tumble
The U.S. stock market pulled back Thursday in a late sell-off led by battered technology issues.
Despite good news on inflation and a surprisingly large interest rate cut in Germany, the Dow Jones industrials fell 34.32 points to 5,182.15 after struggling for much of the day to maintain Wednesday’s record closing high.
Analysts blamed Thursday’s fast drop in part on today’s quarterly expiration of individual stock options, stock index options and index futures. Computerized program trading strategies tied to those expirations often produce wild price swings, and helped fuel Wednesday’s 41.55-point Dow index surge.
But another disappointing earnings forecast from a large technology company--Finland’s Nokia Corp.--also was a major force behind Thursday’s slump.
“Expectations for profits in 1996 are a little high, and they’re going to have to be toned down,” warned John Gardner, chief investment strategist at Van Liew Capital, which oversees about $300 million in assets.
Still, Thursday’s selling wasn’t overwhelming. Losers outnumbered winners by 13 to 11 on the New York Stock Exchange, a fairly narrow margin. Trading volume was swelled by option and future expiration-related transactions.
On the Nasdaq market, the composite index slumped 18.35 points to 1,038.19, a decline of nearly 1.8%, because of the renewed hammering suffered by many tech issues.
Stocks also may have been hurt by the bond market’s failure to rally Thursday even though the government said its consumer price index was unchanged in November, quashing inflation fears.
What’s more, U.S. bonds drew little strength from news of the German Bundesbank’s half-point rate cut. Some analysts said that reduction could put more pressure on the Federal Reserve Board to lower U.S. rates when the central bank meets on Tuesday.
But U.S. bond yields, already so low that they fully anticipate a Fed cut of as much a half-point, closed mixed on Thursday. The 30-year Treasury bond yield inched up to 6.08% from Wednesday’s 6.07%, after falling to 6.05% at midday.
Nor did the dollar rally after the German rate cut, as might be expected. Instead, the dollar eased to 1.439 German marks and 101.50 Japanese yen, from 1.449 marks and 101.68 yen Wednesday.
The inability of long-term bond yields to drop below 6%, even with Thursday’s good news on inflation, suggests that “we’re close to the end of the bond market rally,” said Kevin McClintock, bond analyst at Dreyfus Corp.
That could cause problems for stocks in the near-term, analysts warn, with many investors itchy about preserving this year’s big paper profits.
Among Thursday’s highlights:
* Nokia, a major producer of consumer electronics and cellular phones, stunned Wall Street by saying fourth-quarter earnings will be below year-ago results. It mostly blamed slumping color TV sales in Europe, but conceded that its cellular phone business also isn’t meeting expectations.
Nokia shares traded on the NYSE plummeted 10 3/4 to 35 1/2, and dragged other telecommunications and electronics stocks lower in sympathy.
Motorola sank 2 1/2 to 57 3/8, Ericsson fell 1 3/4 to 19, DSC Communications lost 1 7/8 to 34 3/4 and Tellabs gave up 2 1/4 to 36 3/4.
* Technology stocks in general fell sharply. Intel dropped 2 5/8 to 60, Compaq fell 2 3/8 to 45 1/4, Adobe Systems slumped 5 7/8 to 66 1/8, Hewlett-Packard fell 2 5/8 to 78 1/8 and Microsoft tumbled 3 to 88 3/4.
Also, Micron Technology gave up 3 5/8 to 50. After the market closed the computer chip maker said that quarterly earnings doubled from a year ago, but it also warned of “modestly lower” chip prices ahead because of apparently slackening demand.
* Disappointing earnings news also came from Federal Express, which dropped 5 1/4 to 76 3/8 after reporting lower-than-expected quarterly results.
* The day’s winners were mostly the same brand-name growth stocks that have led the market in recent months, including Merck, up 1 3/4 to 66 7/8; Philip Morris, up 1 1/4 to 93 1/8; and Hershey Foods, up 1/2 to 65 1/2.
Electric utilities, another “safe haven” sector, also rose.
Overseas, shares failed to rally strongly in Frankfurt despite the German rate cut. The DAX index ended the day up 8.05 points at 2,285.85. London’s FTSE-100 index also was up only modestly.
But Tokyo shares made solid gains, ending at an 11-month high. The 225-share Nikkei average advanced 215.82 points to 19,499.30.
In Mexico City the Bolsa index slipped 10.67 points to 2,575.44. In Sao Paulo, the Bovespa index was hit by profit-takers, falling 4.3%.
