Concern Over Key Reports Clips Dow
Stocks fell Thursday as concerns about earnings growth and possible surprises in Friday’s employment report overshadowed any optimism about a big drop in interest rates.
Technology and aluminum shares were hit hard as Wall Street assessments of those industries grew more conservative. IBM and Alcoa accounted for more than half the drop in the Dow Jones industrial average, which fell 30.29 points to close at 5,667.19.
The Dow, which gained more than 25 points near the open as bond yields fell, has been struggling since the blue-chip average closed at a record 5,778.00 more than two weeks ago.
Broad-market measures also turned lower after a strong opening despite the steep drop in bond yields that normally would have sent stocks soaring on the prospect of cheaper borrowing costs and increased consumer spending.
Many investors have been locking in profits rather than commit new money to a pricey market without a clearer indication on inflation. Investors were particularly skittish before the release of the monthly employment report, which has helped spur violent sell-offs several times this year.
“Traders wanted to go into Friday light, not knowing what the report would show,” said Michael Metz, vice president of Oppenheimer & Co.
Earlier this year, the report revealed big gains in new jobs, prompting worries that increasing spending power would translate into inflation by creating too much demand. Investors worry that rapid inflation will force the Federal Reserve to fight inflation by raising short-term interest rates.
Despite all the worries about inflation, which hurts the value of fixed-income securities like bonds, the Treasury market rallied at the open after The Washington Post reported that Fed officials were disavowing reports saying they were hinting that strong economic growth is likely to prompt an interest-rate hike when the central bank’s policy makers meet in early July.
The yield on the Treasury’s main 30-year bond fell to 6.90% from 6.95% late Wednesday.
But stocks retreated as investors also began to focus on the prospect that earnings growth may slow if the economy isn’t expanding as rapidly as thought.
Declining issues outnumbered advancers by a margin of more than 4 to 3 on the New York Stock Exchange, where volume totaled 463.14 million shares, exceeding 400 million for the first time in nine sessions.
The NYSE’s composite index fell 2.28 points to 361.10 and the Standard & Poor’s 500-stock index fell 5.41 points to 673.03. Both indexes, dominated by large companies, had briefly moved into record territory in the morning.
The Nasdaq composite index tumbled 16.63 to 1,232.52, retreating from Wednesday’s record close as key technology bellwethers slid.
Among the market highlights:
* Tech stocks were weak. Intel fell 1 5/8 to 75 1/4, Sun Microsystems lost 2 3/4 to 63 7/8 and Cisco Systems dropped 1 1/2 to 55 5/8. Digital Equipment fell 3 to 46 1/2 after Goldman Sachs reportedly lowered its earnings estimate for the computer maker.
* IBM was one of the weakest Dow components, falling 3 5/8 to 101 1/4. Paired with Alcoa, which fell 1 3/4 to 57 7/8, the two stocks accounted for more than a 15-point drop in the Dow.
* Financial stocks were lower on profit-taking despite the improving interest rate environment, which bolsters profit margins on loans. J.P. Morgan fell 1 to 87 1/8, and Citicorp fell 1 3/4 to 84 7/8 after a downgrade by Salomon Bros.
* Presstek plunged 31 1/2 at 77 1/2 amid reports of an federal probe into possible stock manipulation involving the once-highflying printing-technology company.
* US West gained 1/8 at 33 1/8, Time Warner added 1/8 at 41 1/4 and Turner Broadcasting System Class B rose 5/8 at 27 3/4 after US West’s effort to block Time Warner’s $7.5 billion purchase of Turner Broadcasting System was rejected by a Delaware Court.
* Hilton Hotels fell 3/4 at 113 3/4 but Bally Entertainment rose 1 1/2 at 27 5/8 after Hilton agreed to acquire Bally.
* AT&T; Capital added 3 at 44 but AT&T; lost 3/4 at 61 1/4 after AT&T; agreed to sell its stake in AT&T; Capital to managers and other investors.
Overseas, Tokyo’s 225-share Nikkei average closed down 76.97 points, or 0.35%, at 21,804.46. Hong Kong’s blue-chip Hang Seng index surged 133.32 points, or 1.20%, to close at 11,225.83.
