Dow Tumbles 70.09, Ending 3-Day Rally
IBM’s cautious outlook on the coming months undercut the Dow Jones industrial average and the broader market Wednesday as investors took profits on a three-day winning streak.
The Dow tumbled 70.09 points to 5,549.93, with IBM accounting for nearly half the drop. In the previous three sessions, the Dow had erased two-thirds of its recent 200-point slide, which had been caused by interest-rate and inflation worries stemming from strong economic reports.
Most of the broad-market measures were negative too, but not as sharply. And the American Stock Exchange’s market value index managed another positive session, climbing 1.07 points to 580.38 for its second straight record close.
Declining issues outnumbered advancers by more than 4 to 3 on the New York Stock Exchange, where volume was heavy at 452.89 million shares, almost even with Tuesday’s pace.
The NYSE’s composite index fell 1.72 points to 344.56, the Standard & Poor’s 500-stock index fell 3.39 points to 641.61 and the Nasdaq composite fell 3.61 points to 1,121.31.
IBM started the day higher after it released a strong earnings report--one that beat Wall Street forecasts. But in a conference call with analysts, IBM’s top financial executive warned that currency fluctuations and continuing shifts in big computer design and demand could pose difficulties in the near future. IBM stock tumbled after the call, ending the day at 105 1/4, down 10 1/4.
“It’s inevitable that the dollar strengthens this year against major currencies,” said Tom Carpenter, chief economist of ASB Capital Management Inc. “It’s a trend that will continue, and large cap companies may significantly underperform.”
He said heavy equipment maker Caterpillar, another Dow 30 component, is another multinational firm whose earnings are vulnerable to the dollar. Caterpillar fell 2 3/4 to 67 3/4.
Technology stocks weakened, pulling the tech-heavy Nasdaq composite and Russell 2000 list of smaller companies back from Tuesday’s record finishes. But those losses were less severe and were generally attributed to profit-taking after the series of strong earnings reports that fueled the market’s recent advance.
“Corporate earnings seem to be running 7% to 10% ahead of estimates,” said Alan Ackerman, senior vice president at Fahnestock & Co. “But the rest of earnings tale is yet to be told. There’s a sense that the small caps are likely to outperform blue chips for the balance of 1996.”
Bond yields rose, sending the interest rate on the 30-year Treasury bond above 6.8%, despite a report showing that construction of new homes and apartments slipped 3.9% in March--the steepest drop in a year--as mortgage rates continued to climb.
The housing figures were in line with analysts’ expectations, but bond prices often rise on signs of sluggishness in the economy, which can prompt the Federal Reserve Board to lower interest rates, making fixed income investments more attractive. Stocks often fall with bond prices because higher borrowing costs hurt corporate profits and slow consumer spending.
Among market highlights:
* The Dow also was hurt by slightly disappointing earnings reports from AT&T;, down 1/2 at 61 3/8, and Coca-Cola, down 1 3/8 to 80.
* Nynex rose 2 to 53 1/8 and Bell Atlantic rose 1 5/8 to 61 7/8 after a report appeared in The Wall Street Journal saying the two Baby Bells have revived talks that could result in a merger. Combined, the two would be a communications company second in size only to AT&T.;
* CyberOptics tumbled 5 9/16 to 20 3/16 after reporting results that met analysts’ expectations.
* Wall Street rewarded companies that reported better-than-expected quarterly results. Among them, Ford Motor rose 1 1/8 to 36 1/2, Illinois Tool Works, gained 2 to 65 7/8, and Textron, was up 2 3/4 to 87 7/8, and AMR, the parent of American Airlines, rose 1 1/2 to 92 7/8.
Overseas, the Tokyo Nikkei-225 stock average fell 0.2%, the Frankfurt DAX index lost 0.6% and the London FTSE-100 fell 0.5%.
Wheat prices rose sharply concern about the condition of the United States’ winter wheat crop helped to reignite the market’s bull trend after Tuesday’s setback.
The rally came as farmers of both hard and soft red winter wheat across the U.S. were facing decisions about whether to abandon crops.
Department of Agriculture chief meteorologist Albert Peterlin said the winter wheat crop had gotten off to its worst start since the 1989 drought year.
Kansas, the leading winter wheat producing state, has been badly hit by dry conditions and much of the crop may be beyond hope, agronomists said.
Speculative selling and profit-taking had sparked a sharp setback earlier in the week, with December delivery wheat on the Chicago Board of Trade falling from a contract high on Monday of $5.67 a bushel to a low in overnight trading early Wednesday of $5.17.
December wheat closed 4 cents up at $5.40 1/2 on the Chicago Board of Trade on Wednesday.
Crude oil futures on the New York Mercantile Exchange also bounced back after a recent tumble; the market closed with mixed trends.
The May contract, which expires on onday, ended higher after recovering from a huge $1.27-a-barrel fall early in the session. Recent crude expirations have been characterized by price spikes, dealers said.
