Profit Jitters Offset Relief Brought by Fed
The Federal Reserve Board’s decision not to raise interest rates provided a brief sigh of relief on Wall Street, but a still-uncertain outlook for corporate profits pulled stocks lower Tuesday.
The Dow Jones industrial average fell 20.71 points to 5,874.03, surrendering a sudden 50-point gain that followed the central bank’s announcement shortly after 2 p.m. EDT. But most of the Dow’s decline came on a big drop in AT&T; shares after the company warned of disappointing profits.
Most broad-market indexes also finished lower, gyrating several times before the close. Analysts said investors, concerned about pricey conditions after this month’s record-setting advance, used Tuesday afternoon’s rally to secure some profits.
“It’s a market that’s stretched out and overbought, so a lot of people sold into” the rally, said Larry Rice, chief investment officer at Josephthal, Lyon & Ross.
Stock prices swung higher and lower with the bond market, where the yield on the 30-year Treasury--a benchmark used to calculate the interest rate charged on many loans--fell below 7% right after the Fed announcement, finishing at 6.98%, down from Monday’s 7.02%.
The Dow was weighed down throughout the session by AT&T;, which slid 5 5/8 to close at 51 1/2--the equivalent of about 16 1/2 Dow points. It was the New York Stock Exchange’s most active issue. Before trading opened, AT&T; warned that intense competition, particularly in consumer long-distance operations, would push its third- and fourth-quarter profit as much as 10% below expectations.
“When you get a big blue-chip name like AT&T; saying the third quarter isn’t going to be as good as what we thought, the ripple effect in the market has the potential to really start dragging down stock prices across the board,” said Robert Froehlich, chief investment strategist at Van Kampen American Capital.
Advancing issues outnumbered decliners by nearly an 8-7 margin on the NYSE, where volume was heavy at 457.88 million shares. But the Standard & Poor’s 500-stock index fell 0.87 point to 685.61, the NYSE’s composite index fell 0.28 point to 365.23, and the American Stock Exchange’s market value index fell 0.22 point to 563.40.
The technology-laden Nasdaq composite index, lifted by a rally in semiconductor shares, managed a solid gain for the session, rising 3.80 points to 1,215.27.
Chip stocks benefited from a positive reaction to an Intel presentation and news that Morgan Stanley and Hambrecht & Quist had upgraded their assessments of the industry. Micron Technology rose 4 to 31 1/2, Texas Instruments rose 5 5/8 to 57 3/8 and LSI Logic rose 1 1/4 to 24 3/4. Intel rose 3/4 to 96 1/2.
Among Tuesday’s highlights:
* Several initial public offerings drew strong buying. Cross-Continent Auto, which operates six franchised automobile dealerships, climbed 6 to 20 in its debut. Hot Topic, an apparel maker, rose 8 1/8 to 26 1/8 on its first day.
* Apparel designer Mossimo extended its losses, falling 3 1/2 to 30 1/2 after sinking 6 7/8 on Monday on its warning that earnings would fall far short of analysts’ expectations.
* Los Angeles-based Aames Financial slumped 4 1/8 to 48 7/8. The mortgage broker said it would issue 1.5 million new shares. Its stock was also lowered to “hold” from “buy” at Montgomery Securities.
* Revco DS, a drug retailer, rallied after it reported net income in the fiscal first quarter of 21 cents a share, better than expectations. Its shares rose 1 1/4 to 27.
Overseas, Tokyo’s Nikkei stock average rose 0.3%, Frankfurt’s DAX index rose 0.4% and London’s FTSE-100 fell 0.2%.
