Profit-Taking Pulls Down Stock and Bond Markets
The Dow Jones industrial average entered it 101st year amid a mild sell-off Tuesday, as some recently soaring stocks tumbled and investors overall turned a bit more apprehensive.
Meanwhile, a better-than-expected report on April home sales helped push bond yields up.
On Wall Street, the Dow index slid 53.19 points to 5,709.67, the biggest one-day decline since May 2. But the Dow’s loss, as the New York Stock Exchange officially marked the blue-chip index’s 100th anniversary with a small ceremony, paled in comparison with the drop in some smaller stocks.
The day’s big losers included Iomega, Presstek, Corrections Corp. of America and a number of other smaller issues that had rocketed in recent months, lending a much more speculative air to the bull market.
Some of the stocks began to turn down last Friday, and the selling continued Tuesday.
“These stocks [were] running up on a buying panic and emotion that defies technical or fundamental reasoning,” said Bob Dickey, analyst at Dain Bosworth in Minneapolis. “When some of these hot stocks reverse, they will drop faster than they rallied.”
Iomega, which makes computer data storage devices, plunged 5 11/16 to 38 7/8 on Tuesday after sliding 6 11/16 last Friday. Presstek, an imaging-technology company, sank 8 to 166 3/4 Tuesday. Over the past year it had rocketed from 38 1/2 to a recent peak of 200.
Traders said there was no news to account for the declines in many of the formerly hot stocks. However, one recent Wall Street darling, retailer Baby Superstore, set a negative tone with a weak earnings report. The stock plummeted 10 5/8 to 24 1/2.
Analysts said the scramble to take profits in high-flying stocks could send them even lower in days to come.
In the broad market Tuesday sellers had control, with losing stocks outnumbering winners by nearly 2 to 1 on the New York Stock Exchange and by 24 to 16 on Nasdaq.
However, trading was fairly thin following the long holiday weekend. Only 341 million shares changed hands on the NYSE.
Despite the sharp declines in some Nasdaq issues, the Nasdaq composite index limited its loss to 11.50 points, at 1,236.30.
The bond market cast a negative tone for financial markets early in the day, as yields inched up after the National Assn. of Realtors reported that sales of existing homes rose 0.5% in April, the third consecutive advance. The report pointed to a strong economy.
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 later, a report from the Conference Board that said consumer confidence ebbed in May.
By the end of trading, the 30-year Treasury bond yield was at 6.85%, up from 6.83% last Friday.
The stock market also may have been troubled by a continuing rise in the dollar: It jumped to a 17-month high against the German mark and six-week high against the Japanese yen, fueled primarily by speculation that the German and Japanese economies will remain weak, and their own interest rates low.
Rumors of a possible North Korean invasion of South Korea also sent traders into dollars, often regarded as a safe haven currency.
The dollar finished at 108.85 yen in New York, up from 107.80 Friday. It also ended at 1.546 German marks, up from 1.542 Friday.
A stronger dollar can be harmful to U.S. multinational companies by devaluing their foreign earnings.
For a brief time Tuesday morning, traders tried to forget the day’s issues and welcome the Dow index into its second century.
The 100th anniversary of the Dow was marked at the NYSE 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, and NYSE Chairman Richard Grasso. GE is the last remaining original component of the modern Dow index.
Unfortunately, Welch’s presence didn’t help GE, which sank 2 1/4 to 82 3/4 on the day.
Among Tuesday’s highlights:
* Profit-taking in recent high-fliers clipped diode-maker MRV Communications 6 3/4 to 67 1/2, prison-operator Corrections Corp. 3 1/2 to 80 5/8, Optical Cable 14 to 78 and PairGain Technologies 3 to 94.
Also, Southland-based PIA Merchandising plunged 8 3/4 to 17 1/4 after brokerage Furman Selz reportedly reduced earnings estimates for the retail-services company.
* Energy stocks fell as gasoline prices slid. Texaco lost 1 1/8 to 84 7/8, Chevron fell 1/2 to 60 5/8 and Exxon eased 5/8 to 86 3/8.
* Tobacco stocks, which had surged last week, dropped after the U.S. 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 sank 3 1/2 to 100.
* On the plus side, some larger tech issues gained. Intel rose 1 1/2 to 72 1/2, Sun Microsystems jumped 2 3/8 to 64 and Lucent Technologies added 1 1/4 to 39 1/8. Some analysts said money coming out of more speculative Nasdaq issues may have flowed into bigger tech names.
