Dow Loses 79 on Profit Taking; Smaller Issues Push Nasdaq Up
Investors locked in profits Tuesday on November’s stunning blue-chip rally, handing the Dow Jones industrial average a 79-point loss, its worst plunge since July’s bruising sell-off.
The Dow industrials fell 79.01 points to 6,442.69, having surrendered a 33-point morning gain that briefly put the blue-chip barometer into record territory. It was the Dow’s steepest drop since its 161-point dive on July 15 amid big worries about inflation and corporate profits.
Broader stock measures also pulled back sharply in the last hour, but the day’s overriding strength in smaller, more speculative shares helped maintain a small gain for the Nasdaq market, which closed at a record high for the seventh straight session.
Some of the day’s heaviest damage was inflicted among the leaders of last month’s nearly 500-point rally by the Dow. General Electric tumbled 4 1/8 to 99 1/8, Procter & Gamble fell 3 7/8 to 104 3/4, and United Technologies fell 3 1/2 to 136 1/2. Together, they accounted for about 34 points of the Dow’s drop.
Stocks opened the day higher as Treasury bonds rallied on another improvement in the dollar and more signs that the economy may be slowing enough to contain inflation without an increase in interest rates by the Federal Reserve Board. A stronger dollar makes U.S. investments more lucrative to foreign investors, who convert their returns to other currencies.
The Conference Board research group reported that its index of leading economic indicators, designed to forecast economic activity six to nine months in advance, rose just 0.1% in October. The Commerce Department, meanwhile, reported that new-home sales plunged a surprising 8.7% in October to the lowest level in seven months.
But bonds gave back much of day’s gains in the afternoon as the dollar weakened, boosting interest rates and pulling blue-chip and other large-company shares into negative territory. The Treasury market was also pressured by a flood of $850 million in new bonds being sold by IBM, said Sung Won Sohn, chief economist at Norwest Corp. of Minneapolis. IBM fell 3/8 to 162 5/8.
As bond prices rose in the morning, the yield on the 30-year Treasury bond fell as low as 6.31% from late Monday’s 6.36%. The yield hasn’t finished a day below 6.33% since mid-February, just before this year’s inflation jitters started to build in the financial markets. But as bonds retreated Tuesday afternoon, the yield was unchanged at 6.36%.
In a striking contrast to November’s blue-chip dominance, smaller-company shares continued to show new signs of life, having lagged the broad market’s rebound from July’s slide.
The Nasdaq composite index, laden with technology and smaller companies, rose 0.55 to 1,300.37, its first foray above the 1,300-mark. But notably, there was a 0.8% drop in the Nasdaq 100, an index of the market’s 100 largest nonfinancial stocks. The Russell 2000 list of smaller companies, meanwhile, rose 0.7% for the session.
Several series of computer-guided “sell” orders fueled the drop in the Dow and Standard & Poor’s 500 Index, which fell 8.28 to 748.28, its largest decline in three months. Still, advancing stocks outnumbered decliners on the New York Stock Exchange by almost 13 to 12.
The NYSE composite index made its first move above 400, but fell 3.29 to 394.85 for the day. The American Stock Exchange’s market value index fell 0.75 to 592.18.
Stocks’ decline came as the U.S. dollar sank to 113.29 yen, from 114.55 on Monday. The dollar’s gain against the yen since early August was credited with boosting both the Treasury bond market and stocks in recent months, as some hedge-fund investors borrowed yen in Japan at less than 1%, and bought financial assets in the U.S.
Gold prices fell to a three-year low on renewed concerns about gold sales by European central banks and international mining houses, but managed to recover somewhat late in the day.
February gold ended down 50 cents at $370.40 an ounce on the New York Commodities Exchange after hitting a new life-of-contract low at $367.70 an ounce early in the day.
Among Tuesday’s highlights:
* Technology bellwethers were pulled lower in the late downdraft after leading the market’s morning advance. US Robotics slumped 7 1/8 to 73 3/4 on concern that sales in the current quarter may fall short of estimates.
Microsoft fell 3 1/16 to 154 11/16. The software giant said it plans to pay dividends to stockholders for the first time through a new issue of $750 million worth of preferred shares.
Market Roundup, D7
* MARKET BEAT: Small-stock funds are finally showing signs of life. D6
