Stocks Lurch Slightly Lower on Volatile Day
Stocks seesawed sharply Monday, ending slightly lower after a morning rally following IBM’s earnings report.
The Dow Jones industrial average ended the volatile day down 3.36 points at 6,090.87, rebounding in the last half-hour from a 34-point loss. Earlier, the Dow surrendered a nearly 40-point jump. On Friday, it closed at a record 6,094.23. The Standard & Poor’s 500 had a similar day, ending at 709.95.
The up-and-down day of trading was mirrored by International Business Machines Corp., which climbed to a five-year high of 135 3/8 only to end the session at 130, up 5/8. Optimism about the company’s personal computer business gave way by day’s end to lingering doubt about how much further the stock can rise.
“People got a little too excited about IBM, and they are settling back to the reality,” said Annette Geddes, fund manager at Spears, Benzak, Salomon & Farrell. “It is a little unsettling to see the market reverse so dramatically.”
With dozens of companies reporting earnings at this time of the quarter, investors were watching and reacting to each report. “It’s a fairly quiet week for economic news, so it’s the quarterly earnings and comments surrounding them that are the news,” said Charlie Crane, director of research at Spears.
IBM said it earned $1.3 billion in the third quarter, contrasted with a loss of $500 million a year ago when it was paying for its acquisition of Lotus Development Corp.
The market got an extra boost from comments by IBM’s Chief Financial Officer G. Richard Thoman that he is still “very comfortable” about the firm’s prospects for 1996 and its position going forward.
“The CFO’s comments were encouraging and taken as a bellwether for the industry,” Crane said.
Just as IBM set the tone for trading Monday, computer software giant Microsoft could set today’s pace.
After the market closed Monday, Microsoft said its quarterly earnings rose to a record $614 million, or 95 cents a share, from $499 million, or 78 cents. The earnings beat Wall Street estimates of 90 cents.
“It’s a good number. I would expect stocks to rebound” today, said Philip Orlando, chief investment officer at Value Line Asset Management.
Microsoft closed 3/4 lower at 134 but rallied to 136 3/8 in after-hours trading on the upbeat earnings.
The Dow index topped 6,100 points for the first time during Monday’s session, hitting a high of 6,133.73 before falling to a session low of 6,059.94.
Among Monday’s highlights:
* Texaco, up 2 1/2 at 105 7/8 as the Dow’s biggest gainer, reported a 50% gain in profit, which beat expectations soundly. The Dow’s other two big oil concerns, Exxon and Chevron, both exceeded expectations by a small margin but their shares sank. Exxon lost 3/8 to 89 and Chevron fell 1/8 to 67 1/4.
* Xerox resumed its slide, losing 2 3/8 to 46 1/2; it was the most active NYSE issue. Lehman Bros. downgraded the stock and Salomon Bros. cut earnings estimates. The stock slumped 8 1/8 on Friday after reporting dismal earnings.
* Sinclair Broadcast lost 9 to 34 3/4. The company warned that it would report disappointing results.
Overseas, Tokyo’s Nikkei stock average fell 1.4%, Frankfurt’s DAX index fell 0.2% and London’s FTSE-100 rose 0.5%.
In Mexico City, the Bolsa index fell for the first time in four sessions as a weakening peso raised concern that interest rates may rise in today’s Bank of Mexico auction of treasury bills. The Bolsa ended down 1%, at 3286.04.
Crude oil futures ended higher in New York after pushing past $26 a barrel, its highest level since January 1991, as dealers sold heating oil in favor crude.
Crude oil on the New York Mercantile Exchange for November delivery settled up 13 cents at $25.92 a barrel after rising as high as $26.05. Traders said volume was thin, with little buying interest for refined products.
But after days of rising on fears of insufficient supplies in the Northeast, November heating oil closed down 0.43 cent a gallon to 73.63 cents.
Observers do not expect oil prices to drop significantly. “The underlying trends are positive, with the growth in demand from China over the next eight to nine years,” said A.C. Moore, senior investment strategist at Dunvegan Associates Inc. “Producers were carrying low inventories in anticipation that Iraq would sell crude, but they didn’t.”
Meanwhile, wheat prices fell to their lowest level in 16 months.
“U.S. wheat is too high-priced relative to the EU and especially Argentina,” said Skip Searcy, wheat trading specialist for Chicago-based grain house FIMAT Futures.
The United States voiced new worries Sunday that the European Union might undercut U.S. farmers and compete head-on for sales by using subsidies.
“We would consider that fairly aggressive,” Agriculture Undersecretary Gene Moos said during a visit to Paris. Such a step would force Washington to consider restoring its own subsidies to protect its farmers, he said.
The EU irritated Washington by bringing back limited wheat export subsidies last month after a 16-month pause. Exporters were seen competing for scant business. “The buyers are few and far between; they just don’t seem to have an appetite,” Searcy said.
Market Roundup, D10
