U.S. stocks were slammed almost across the board Wednesday as some nervous investors cashed out for a second day, seeking haven in Treasury bills, gold and other "defensive" investments.
Among the few bits of good news for the market was that battered technology stocks tried to stabilize, and small-stock indexes in general didn't fall as steeply as on Tuesday. The Nasdaq composite index, down 3.3% on Tuesday, lost 0.9% on Wednesday.
As Wall Street's profit-taking flurry continued--a reaction to Washington's budget stalemate and to economic jitters--some analysts were already suggesting that investors start looking for bargains.
"The U.S. economy . . . looks to be in its best shape in perhaps 40 years" despite concerns about the current cyclical slowdown, argued Donald Straszheim, economist at Merrill Lynch & Co. in New York.
The Dow Jones industrial average tumbled 97.19 points, or 1.9%, to 5,032.94 on Wednesday, bringing its two-day slide to almost 165 points.
From its record high of 5,216.47 reached Dec. 13, the Dow has fallen 3.5%. But analysts point out that a drop of 10% or so would not be unusual in a classic market "correction," especially in the wake of last year's huge gains.
Wednesday's selling was spurred by a fresh breakdown in balanced-budget talks between President Clinton and Congress. Bond traders, unnerved by the budget negotiations' lack of progress, pushed long-term Treasury bond yields to 6.19% on Wednesday, the highest level since Dec. 18--which marked the last major breakdown in the budget talks.
Some traders said the T-bond yield could reach 6.5% soon.
Yields had recently plunged to two-year lows on optimism about a budget accord, which Wall Street widely believes would help keep long-term interest rates subdued for years to come.
With budget talks stalled, profit takers are slamming bonds, and that in turn is undermining stocks.
In addition, the stock market has had to contend with disappointing fourth-quarter earnings announcements from a growing group of companies, many of which appear to have been hurt in part by the sluggish economy.
Technology firms have led the bad-earnings parade. In the latest such announcement, Apple Computer said it will record a fourth-quarter operating loss.
Yet many analysts argue that corporate earnings overall will continue to advance in 1996, albeit at a slower pace. "There is no sign of a recession in sight" that would broadly depress corporate earnings, said John Williams, economist at Bankers Trust in New York.
"The positive fundamental backdrop for stocks is still there," said Howard Gleicher, money manager at Palley-Needelman Asset Management in Newport Beach. He noted that despite the surge in long-term bond yields, short-term interest rates have remained stable in recent days--a sign that investors still expect further rate cuts by the Federal Reserve Board.
Nonetheless, some investors snapped up gold futures and gold stocks Wednesday, looking for a safe place to hide. Although the January gold futures contract on the Comex closed just below $400 an ounce, the more active February contract pierced that level, rising $3.30 to $400.20.
That's the highest for an active contract since August 1993.
"If Washington continues to prevaricate, this nervousness in the financial markets might be enough to push gold higher," said Greg Drury, director of precious metals at Mitsui & Co.
Among Wednesday's highlights:
* Losers swamped winners by 20 to 5 on the NYSE in heavy trading of 498 million shares.
* Blue chips leading the Dow index lower included Chevron, down 2 1/8 to 53; GE, off 1 3/4 to 70 3/8; and Disney, down 1 3/4 to 59 5/8.
* Heavy selling also hit auto, brokerage, bank, drug, energy and defense shares, among others. Airline stocks led the Dow transports index in a 2.5% decline.
* Beaten-down tech stocks were mixed. Seagate rose 7/8 to 47 3/4 after a healthy earnings report. And Microsoft rebounded 2 3/16 to 82 3/8 after brokerage Morgan Stanley rated the stock a "buy."
But Intel fell 7/8 to 54 1/8 and Sierra On-Line sank 3 3/4 to 20 3/4.
* Gold stocks rising included ASA, up 1 1/4 to 42 7/8, and Hemlo Gold, up 5/8 to 11 5/8.
Overseas, most foreign stock markets followed U.S. shares lower, but modestly so. Tokyo's Nikkei-225 index fell 0.2%, London's FTSE-100 index sank 0.8% and Hong Kong's main index slumped 1.2%. In Mexico City, the Bolsa index inched up 0.6%.
* PANIC ATTACK
Budget stalemate, slow economy rattles stocks. A1
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Near-term gold futures prices per ounce on Comex, monthly closely except latest:
Wednesday: $399.70, up $3.50
Source: Bloomberg Business News