Strong Economic News Pushes Dow Down 53.19
Stocks slid sharply Tuesday as interest rates rose on some strong economic readings that renewed inflation worries and a higher dollar inspired fears that multinationals’ earnings will be hurt. Both provided an excuse to take profits.
The Dow Jones industrial average fell 53.19 to close at 5,709.67 after briefly dipping below 5,700. The barometer of 30 big U.S. companies, which celebrated its 100th anniversary over the weekend, continued to stumble after setting two new records last week.
Broader market measures also fell in very light trading. With many traders taking the entire week off and weekend media reports focusing on the market’s pricey condition, there was little impetus for new buying, analysts said. Declining issues outnumbered advancers by nearly 2 to 1 on the New York Stock Exchange, where volume totaled just 338.25 million shares as of 4 p.m., well below Friday’s pace.
The 100th anniversary of the Dow Jones industrial average was marked at the NYSE on Tuesday with the ringing of the opening bell by Peter Kann, chairman and chief executive of Dow Jones & Co., John Welch, chairman and chief executive of General Electric Co., and NYSE Chairman Richard Grasso. GE is the last remaining original component of the Dow index.
In the bond market, yields rose after the National Assn. of Realtors reported that sales of existing homes increased 0.5% to 4.22 million in April, the third consecutive advance. The price of the Treasury’s main 30-year bond yield rose to 6.85% from 6.83% on Friday.
The real estate report was reinforced in the afternoon when Johnson Redbook reported an increase in retail sales for the first three weeks of May compared with April. But both were mitigated somewhat by a report from the Conference Board that said May consumer confidence was at 101.2 vs. April’s downwardly revised 104.8. The index was expected to come in at 101.1.
“I found the consumer confidence encouraging as they eased some fears of an inflation boom,” said Michael Metz, chief investment officer at Oppenheimer & Co. “But basically I think the market is overdue for some sort of decline or correction.”
Since early March, the financial markets have been struggling to interpret a series of mixed signals on the economy’s underlying health.
Gail Dudack, a market strategist at UBS Securities, said, “I think the secret to whether we can sustain the rise is what purchases foreigners will make and the mutual fund flow which has helped in the past few months.”
A continued rise in the dollar would reward foreign investors in U.S. markets. On Tuesday, the dollar surged to a 17-month high against the German mark and six-week high against the Japanese yen, fueled primarily by speculation that interest rates in Germany and Japan will remain weak.
Rumors of a North Korean plan to invade South Korea sent traders into dollars, often regarded as a safe haven currency.
By 4 p.m. in New York, the dollar traded at 108.85 yen, up from 107.80 yen Friday and the highest level against the Japanese currency since a 108.95 exchange rate April 12. The dollar also traded at 1.5464 marks, up from 1.5420 marks Friday and its highest level since a 1.5660 reading on Jan. 6, 1995.
The dollar’s rise followed a rally late last week after Eisuke Sakakibara, head of the Japanese Finance Ministry’s international finance bureau, indicated that higher interest rates in Japan were not likely in the near future.
Against the mark, the dollar gained on speculation that the German Bundesbank may lower interest rates at its policy-making meeting on Thursday in order to spur a turnaround in the slumping economy.
In U.S. stock markets, the NYSE’s composite index fell 3.22 to 360.52 and the Standard & Poor’s 500-stock index fell 6.28 to 672.23. Both indexes, which are dominated by larger companies, had closed at record highs on Friday.
The slide extended to the more speculative sector of the market, where a powerful rally that started in early April has met with increasing skepticism. The Nasdaq composite index fell 11.50 to 1,236.30.
Among market highlights:
* Tobacco stocks fell after the Supreme Court turned down an industry appeal to withhold computer databases from Minnesota officials suing to recover state Medicaid costs for treating sick smokers. Philip Morris, down 3 1/2 to 100, led the Dow’s slide, which was also highlighted by profit taking in consumer product makers such as Procter & Gamble, down 1 1/8 to 89 1/4.
* Singer slumped 5 3/4 to 20 5/8 after the company said late Friday that it would report sharply lower second-quarter earnings.
* Coca-Cola fell 1 5/8 to 46 and Pepsi was off 1 1/4 to 66 3/8. Salomon downgraded both mostly on price.
* Texas Instruments rose 3 to 54 1/4 after the company said it developed a new technology allowing it to build computer chips with the processing power of 20 current PCs.
* Matrix lost 7 5/8 to 19 3/8 after the company said its Accusite injectable gel for basel cell cancer failed to meet certain standards for approval.
* Oil stocks fell as gasoline prices slid in commodities trading. Among the Dow industrials, Texaco fell 1 1/8 to 84 7/8, Chevron lost 1/2 to 60 5/8, and Exxon fell 5/8 to 86 3/8.
* Boeing, up 1 3/4 to 85 5/8, cushioned the Dow’s fall after reports that British Airways has ordered up to $4.2 billion worth of 777 and 747 planes.
Overseas, Tokyo’s Nikkei stock average rose 1.1%, Frankfurt’s DAX index rose 0.6% and London’s FT-SE 100 rose 0.2%.
