FINANCIAL MARKETS : Tech Woes, Budget Fears Clip Stocks
A fresh batch of earnings warnings from technology firms combined with another breakdown in federal budget talks to send U.S. stocks broadly lower Thursday in very heavy trading.
The Dow Jones industrial average lost 20.23 points to 5,173.84, but the general market fared worse, and some analysts warned of more selling today.
“These [earnings] disappointments we’re beginning to see may be just the tip of the iceberg,” said Chip Cruice, president of Greenville Capital Management in Greenville, Del.
In the bond market Thursday, long-term yields rebounded sharply after President Clinton and Republican congressional leaders again failed to reach agreement on a balanced-budget plan.
What’s more, some Republicans raised the idea of impeaching Treasury Secretary Robert Rubin for his decision to tap civil service trust funds to avoid a government default while Clinton and Congress negotiate.
In a late-afternoon sell-off, the bellwether 30-year Treasury bond yield jumped to 6.03% from 5.95% on Wednesday.
That triggered a sudden slide in the Dow, which was off more than 50 points before recouping most of that decline by the close.
But analysts noted that the broad market was hurt worse than the Dow, amid widespread dumping of already-beaten-down technology stocks.
The latest tech sell-off began early Thursday after three more tech companies--networking software firm FTP Software, networking hardware maker Microdyne and computer retailer Tandy--issued warnings about weaker-than-expected earnings.
FTP shares collapsed 13 3/8 to 11 7/8, Microdyne plunged 8 1/4 to 7 and Tandy slid 4 3/4 to 35 1/8.
Thursday’s bad news from the tech sector echoed other such company announcements in recent weeks, and forced more investors to confront the prospect of a much-deeper-than-expected business slowdown in what had been the market’s star sector during 1995.
“What is at the heart of [the selling] is that the market got way too speculative last year and overran the fundamentals on the way up. It will do so on the way down too,” warned Chris Callies, analyst at Brown Bros. Harriman.
The Nasdaq composite index, heavy with tech stocks, plunged 16.44 points, or 1.6%, to 1,029.82 on Thursday and is now off 2.1% in the first three trading days of 1996.
Nasdaq trading volume hit a record 630 million shares Thursday, topping the previous record of 597 million set July 19, 1995.
On the New York Stock Exchange, volume was the fourth- heaviest ever, with 512 million shares changing hands.
The market got no help from news after the close of trading: In an announcement expected to set a bad tone today, software giant Adobe Systems said its fourth-quarter earnings will be below expectations. Adobe had closed down 1 7/8 to 58 1/2 but in after-hours trading plummeted to 41 1/2.
Among Thursday’s highlights:
* Tech losers included Cadence Design, down 2 7/8 to 36 1/2; Dell Computer, off 2 3/8 to 32; Quarterdeck, off 2 5/8 to 21 3/4; IBM, down 2 3/8 to 86 7/8; Digital Equipment, off 3 7/8 to 55 3/4; and Ascend Communications, which lost 7 1/4 to 69 1/4.
* In the telecommunications sector, Newbridge Networks lost 2 1/4 to 41, ADC Telecommunications fell 1 3/4 to 31 1/2 and Nokia lost 1 1/2 to 37 1/2.
* Banking stocks slumped after brokerage Goldman Sachs recommended that clients reduce their investment in the group after its stellar 1995 performance.
NationsBank dropped 1 5/8 to 67 1/8, Wells Fargo sank 3 3/4 to 215, Wachovia tumbled 1 5/8 to 43 5/8, Citicorp slid 2 7/8 to 65 3/8 and BankAmerica fell 1 7/8 to 63 5/8.
* Industrial shares under pressure included Goodrich, down 1 3/8 to 69 1/4; Potash, off 2 3/8 to 67 3/8; and Monsanto, which lost 3 1/4 to 121 3/8.
* Some formerly high-flying smaller stocks were zapped. Gymboree fell 2 5/8 to 14 7/8 after the children’s clothing retailer said weak December sales will push earnings below estimates. Callaway Golf dropped 1 1/2 to 19 3/8 after the club maker cut prices on its Big Bertha clubs by 15%.
And Los Angeles-based Chantal Pharmaceutical dove 4 13/16 to 20 3/4 on fears that giant Johnson & Johnson’s new prescription anti-wrinkle cream, approved by the Food and Drug Administration on Wednesday, will cut into sales of Chantal’s non-prescription anti-wrinkle cream.
* On the plus side, some casino stocks gained after reports that Las Vegas had more visitors than expected over the New Year’s holiday. Mirage Resorts surged 1 7/8 to 37, Circus Circus rose 1 3/8 to 29 3/4 and MGM Grand leaped 2 to 25 1/2.
* Major oil stocks also rallied. Mobil rose 2 1/8 to 115 1/8, Chevron added 1 1/2 to 54 1/2 and Atlantic Richfield gained 1 3/8 to 114 1/2.
In currency trading, the dollar continued its New Year’s rally but the gains were trimmed in late profit taking. It closed at 105.30 Japanese yen in New York, up 0.43 yen, after trading as high as 106.55, highest since March 1994.
Foreign stock markets were mixed, with some pulling back after hefty rallies in the first two trading days of the year.
London’s FTSE-100 index eased 1.5 points to 3,714.1 after touching a new trading high of 3,723.0. In Mexico City, the Bolsa index slipped 2.15 points to 3,002.63, while Buenos Aires’ Merval index lost 2%.
But in Tokyo, the Nikkei-225 index ended an abbreviated session up 3.8% to 20,618.60, and Hong Kong’s Hang Seng index jumped 1.7% to 10,573.90.
Stocks in China also surged: The China World index of key shares zoomed 8.6% to 939.53. The index has recently been trading at record lows.
In commodities trading, coffee prices rebounded from their lowest level in 19 months as rains damaged crops in Central America, and the world’s leading producer, Brazil, announced a plan to import small amounts of coffee.
At the Coffee, Sugar and Cocoa Exchange, March coffee futures jumped 4.10 cents to 97.85 cents a pound.
