Stocks slipped Thursday, even as interest rates backed away from 13-month highs, as inflation worries prevailed and a negative outlook in the computer industry dragged down that sector.
The Dow Jones industrial average fell 10.34 points to 5,657.95, rebounding from a midday loss of 28 points as interest rates began to ease. The Dow has fallen every day this week, but less than 40 points overall, demonstrating investor confusion over mixed signals on inflation and interest rates.
“It’s reflective of the debate on whether the economy is too hot or too cold, and the realization that maybe it’s neither too hot nor too cold,” said William Dodge, portfolio manager at Marvin & Palmer Associates Inc. in Wilmington, Del.
A retail sales report initially helped bonds, but the markets were not impressed. Sales are increasing “at an annual rate close to 10%,” said Tracy Herrick, chief investment strategist at Jefferies & Co. in San Francisco. “Analysts may have expected more, but the report still reflects a healthy growth of the economy. It’s in excess of output and would tend to reduce inventories and be positive for growth and negative for bonds.”
The yield of the Treasury’s main 30-year bond fell to 7.12% from 7.19% on Wednesday.
Technology shares suffered the session’s worst losses amid profit taking after Wednesday’s semiconductor rally and a negative outlook issued by Quantum, a leading manufacturer of computer disk drives. Quantum was down 2 3/8 to 16 1/8.
Overall, the technology-laden Nasdaq composite index fell 8.78 points to 1,226.70. Among other leading computer industry names, Intel fell 1 3/4 to 75, Cisco Systems fell 1 to 55 7/8 and Dell Computer lost 1 7/8 to 51 7/8. On the New York Stock Exchange, Compaq Computer fell 1 3/4 to 47 1/8.
Among Thursday’s highlights:
* Southern Pacific Funding, a specialty finance company, rose 2 to 19 in its first day of trading.
* Los-Angeles based computer software maker MacNeal-Schwendler fell 1/2 to 9 7/8 after the company said it would cut its dividend 62.5%.
* FMC lost 4 5/8 to 63 5/8 after forecasting second-quarter share earnings of $1.40 to $1.60, below Wall Street’s $2.16 consensus. It cited high materials costs and market conditions.
* Tambrands fell 2 1/2 to 42 1/2 after warning that second-quarter earnings will be significantly below last year’s 59 cents a share. Salomon cut the stock to “hold” from “buy”.
* Medicis jumped 13 1/4 to 45 1/2. The company attributed the rise to Robertson Stephens’ initiation of coverage of the company with a “buy” rating.
* DSP Communications climbed 6 7/8 to 40 after a Merrill Lynch analyst raised a recommendation on the wireless equipment maker’s stock to “accumulate” from “neutral”.
* Farmers & Mechanics soared 9 7/8 to 30 1/8 after Citizens Financial, the U.S. subsidiary of Royal Bank of Scotland Group, agreed to acquire it for $32 a share, or $53.2 million.
Overseas, Tokyo’s Nikkei stock average fell 0.1%, Frankfurt’s DAX index fell 0.1% and London’s FTSE-100 fell 0.2%.
On commodity markets, wheat prices jumped as dry weather in China fed speculative buying, and oil prices fell after traders shrugged off a possible new squabble that could slow or scuttle Iraq’s deal to sell oil this year.
Wheat futures closed higher on talk that China and Egypt may be seeking U.S. wheat and on the continuing harsh weather in some of China’s grain-growing regions. July wheat rose 10 1/4 cents to $5.04 3/4 a bushel at the Chicago Board of Trade.