Stocks Jolted by Earnings Fears; Yields Fall Again
Earnings fears sent stocks reeling Thursday as dire outlooks from leading players in the technology and health-care industries jolted a market already plagued by worries about inflation and interest rates.
But U.S. bonds gained for a fourth day, pushing yields to a one-week low, as investors anticipated that the Federal Reserve Board may not have to raise interest rates much to cool the economy. The yield on the benchmark 30-year Treasury bond fell to 7.05% from 7.07% on Wednesday.
“There’s a strong argument going on between the bears and the bulls,” said Jon Ender, who manages $1 billion of bonds at Chicago Corp. Asset Management. “The economy might be getting too strong, but I think people on that side have more to prove than those of us who say the economy is OK but not booming.”
The Dow Jones industrial average fell 83.11 points to 5,520.54, its second-biggest plunge in less than a week. Some late bargain hunting helped erase part of a 133-point dive that dragged the blue-chip barometer below 5,500 for the first time since early May.
The technology-laden Nasdaq market, stricken by a stream of negative profit outlooks since early June, flirted with its biggest point loss since the stock market crash of October 1987.
Other broad market measures cut their losses as the prices of many top companies proved too enticing for some to resist. But the day’s slide, coming on the heels of Friday’s nearly 115-point plunge on inflation jitters, was steep enough to convince many analysts that the bull market is seeing the first broad consolidation, or correction, since late 1994.
The day’s troubles actually took shape Wednesday evening, when Hewlett-Packard warned that a sudden slowdown in orders growth would hurt the computer and printer maker’s revenue and profit in the current quarter. The announcement came a day after Motorola reported a second-quarter profit that was well shy of analysts’ expectations.
“If these premier technology companies are having difficulty, then it gives you an indication that there are difficulties throughout the industry that nobody is likely to escape,” said Bill Meehan, a stock market analyst at Prudential Securities.
The mood worsened Thursday morning when United HealthCare, one of the nation’s biggest health insurers, became the fourth health maintenance organization in a month to predict disappointing second-quarter earnings. The ensuing sell-off in technology and health-care issues quickly spread to the rest of the market.
“The earnings disappointments really upset the cart,” said Bob Dickey, managing director at Dain Bosworth in Minneapolis, cautioning that the dollar’s rise against other currencies this year has eroded the value of foreign revenue for many big companies.
There were more than four declining issues for every advancing issue on the New York Stock Exchange, where volume surged to 516.51 million shares, the exchange’s sixth-busiest day ever.
The 1.5% decline in the Dow industrials brought its retreat to more than 257 points, or 4.5%, since its record 5,778.00 of May 22. But the blue-chip average is still up almost 7.9% this year, more than many analysts had predicted for all of 1996.
The Nasdaq composite index, which has slid more than 11% since setting a record high of 1,249.15 on June 5, fell 34.83 points to 1,106.36. Earlier in the day, the index was off as much as 46.70 points, threatening to exceed its biggest point drop for a full session: a 46.12-point plunge on Oct. 19, 1987.
The NYSE’s composite index fell 5.11 points to 346.64, the Standard & Poor’s 500-stock index fell 10.39 points to 645.67, and the American Stock Exchange’s market value index fell 12.72 points to 549.09.
Among Thursday’s highlights:
* United HealthCare shares tumbled 13 1/4, or about 30%, to 31, as one of the NYSE’s most active issues. Other health-care issues followed suit. PacifiCare Health Systems fell 4 1/8 to 66, Aetna Life & Casualty slumped 4 1/8 to 61 1/8, Foundation Health dropped 1 7/8 to 29 1/2, Ornda Health slid 2 to 22 5/8 and US Healthcare fell 2 1/2 at 50 5/8.
The Morgan Stanley Health Care Payer index, a listing of 12 managed-health-care companies, fell 6% to its lowest level in 11 months.
* Shares of Hewlett-Packard fell 10 5/8 to 78 3/8, and Motorola added to Wednesday’s losses, falling 2 to 55 7/8 after the stock was downgraded by two securities firms.
* IBM, down 2 7/8 to 96, was the Dow’s second-weakest issue after Eastman Kodak, down 5 1/8 at 70 3/8, which was downgraded by Prudential.
* Garden Botanika plunged 6 to 14 1/4 after the retailer of botanically based cosmetics and personal-care products reported that same-store sales rose 2% in June.
* The only advancing issues in the Dow were International Paper--up 7/8 at 39 7/8 after beating analyst estimates with its second-quarter profit report--and oil stocks. Chevron rose 5/8 to 60 3/8, Exxon gained 1/2 to 89 3/8 and Texaco advanced 5/8 to 87 3/4.
In commodities trading, grain prices soared at the Chicago Board of Trade as concern about weather damage to U.S. corn and soybeans sparked panic buying among traders already concerned about the lowest world grain stocks in decades.
Gold gained as some buyers fleeing the stock market turned to hard assets. On the New York Mercantile Exchange, August gold closed up $1.40 at $384.00 an ounce.
Market Roundup, D6
