Major Stock Indexes Slide to 6-Month Lows
A blue Monday gave way to an even bluer Tuesday on Wall Street as investors continued to exit the stock market.
The Dow Jones industrials fell 44.39 points, or 0.8%, to 5,346.55, dropping just below the close on July 15, when the index plunged 161 points. The Dow’s Tuesday close was its lowest since Jan. 29.
The Nasdaq composite index of mostly smaller stocks surrendered the last of its 1996 gains, plummeting 32.32 points, or 3%, to 1,049.07, its lowest finish since late-1995. Technology stocks again crumbled, leading the Nasdaq index down.
The market had started the day with a rally, but it was terminated in the afternoon after word spread that Wall Street guru Elaine Garzarelli had turned negative on stocks.
Garzarelli, a former Lehman Bros. strategist best known for calling the 1987 stock market crash, reportedly told clients that her market-timing model suggested stocks are on the verge of a steep slide.
Although she did not return calls to reporters, analysts who heard Garzarelli’s comments to clients in a conference call said she predicted that major U.S. stock indexes could decline 15% to 25% from their 1996 peaks.
The Dow index is already down 7.5% from its May 22 all-time high. The Nasdaq index is off 16% from its June 5 peak.
“Techs are death now. Nasdaq and small caps are in a real bear market,” said David Shulman, chief equity strategist at Salomon Bros.
Other analysts, however, still maintain that the market is merely in the throes of a temporary “correction” that could cut as much as 15% from the Dow and more from volatile smaller stocks.
The market’s shift from raging bull phase to the current period of fearful selling began in mid-June as investors became more concerned about rising interest rates and the potential for slowing corporate earnings growth.
Profit worries have been amplified by some poor second-quarter reports in recent weeks. But in recent days, even some of the best earnings reports have failed to excite investors, who appear convinced that corporate results will be increasingly squeezed by higher costs, a slower economy and greater competition in the second half and in 1997.
Indeed, despite Microsoft’s report of a 50% earnings gain in the quarter just ended, the stock dropped 7 5/8 to 112 1/8 on Tuesday, and most tech shares careened lower with it.
“This market is still shaky, so once a stock starts to slide, buyers just step away and let the stock fall to whatever level will bring in some bargain hunters,” said Robert Streed, analyst at Northern Trust in Chicago. “Microsoft was just an excuse to sell other things.”
Meanwhile, the bond market appeared to benefit from stocks’ continuing woes, as money fled shares for bonds.
The 30-year Treasury bond yield dipped to 6.97% from 7.01% Monday. The bond market also was soothed by Federal Reserve Board Chairman Alan Greenspan’s latest testimony before Congress. In remarks Tuesday he sounded less worried about inflation than he did in similar remarks last week, some analysts said.
That may help the Treasury get a lower yield today when it sells new five-year notes. On Tuesday the Treasury auctioned $18.75 billion in two-year notes at an average yield of 6.29%.
Among Tuesday’s highlights:
* Tech stocks slumping with Microsoft included Intel, down 2 3/4 to 69 1/2; Compaq, down 2 1/8 to 45; Cabletron Systems, down 5 3/8 to 54 7/8; IBM, off 2 1/4 to 90 1/4; Stratus Computer, down 5 1/2 to 19 3/8; and PairGain Technologies, which tumbled 9 7/8 to 44.
* Profit-takers also hit drug stocks, some of which have been among the market’s strongest issues recently. Merck fell 2 to 63 5/8 even though it raised its dividend 18%. Eli Lilly lost 1 5/8 to 56 1/2, Pfizer sank 1 3/8 to 71 1/2 and Chiron slid 2 1/4 to 84 3/4.
* Utility stocks also continued to be under pressure, despite their reputation as being “defensive” stocks in weak markets. The Dow utility index lost 0.84 point to 208.77. Among phone utilities, GTE lost 5/8 to 40 1/4 and Ameritech dropped 7/8 to 54 7/8.
* Among stocks falling on earnings reports, Avery Dennison lost 7/8 to 50, La Quinta Inns sank 3 3/8 to 17 3/8 and Union Camp lost 1 to 47 3/4.
* On the plus side, earnings news pushed Hershey Foods up 4 5/8 to 77 1/4, Ingersoll-Rand up 1 1/8 to 40 1/4, Monsanto up 1/2 to 28 3/4 and Pepsico up 3/8 to 33 1/4.
In foreign trading, Latin American markets were hammered by Wall Street’s latest decline.
In currency trading, the dollar rebounded against the Japanese yen after the Bank of Japan’s quarterly economic report quashed speculation that the central bank will raise interest rates soon.
The report said the economy remains on a path of “moderate recovery,” but that the “pace is slow,” compared to past recoveries.
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Rise and Fall
The technology-heavy Nasdaq Composite index fell Tuesday below its level at the start of the year, leading the overall market lower.
Tuesday: 1,049.05
Source: Bloomberg Business News
