Dow Tumbles in Another Volatile Session
Stocks extended a three-week slide Monday as computer issues tumbled in the late afternoon and as higher Treasury bond yields threatened to lower the amount investors are willing to pay for next year’s profits.
The Dow Jones industrial average ended down 36.52 points at 6,268.35, giving up an early gain of 50 points. The blue-chip index is now down 279.44 points, or 4.3%, from its Nov. 25 record of 6,547.79.
In what is becoming a typical volatile day, computer-guided “sell” orders helped drive stocks lower. The New York Stock Exchange twice imposed limits on such trading, once when the Dow surged 50.36 points in the first 15 minutes of trading, then when the Dow slid 51.51 points in the final 15 minutes.
Intel and Microsoft led the steepest one-day Nasdaq slide in five months. The tech-heavy index plunged 23.93 points to 1,260.98, the biggest point drop since the 32.32-point loss of July 23.
“It’s very likely we’re going to have a slowdown in the earnings growth” of many computer stocks, said Daniel Leonard, a money manager for the Invesco Strategic Technology fund.
“We have to deal with the fact that 1995 and 1996 were terrific years, and what do we do for an encore in the third year? Plus we’re doing it in a year when valuations are stretched,” he said, alluding to high price-to-earnings ratios.
The price of U.S. bonds fell for the first time in three days as traders interpreted a Federal Reserve Board report indicating stronger-than-expected industrial production as evidence that the economy is poised to rebound, raising inflation fears.
The yield on the benchmark 30-year Treasury bond rose to 6.62% on Monday, up from 6.57% on Friday. It was the biggest drop since Wednesday.
Analysts believe Fed policymakers, meeting today, are unlikely to raise interest rates but that they Federal Open Market Committee “has got to be cautious about the economy and the markets,” said Denny Niedringhaus of Southwest Bank of St. Louis. “You could see the economy come back a bit in the first quarter.”
Even Boeing’s plan to buy McDonnell Douglas for $13.3 billion didn’t rescue the market, though it did drive up a host of defense stocks.
Declining issues led advancers by 2 to 1 on the NYSE. Broad indexes were mixed.
The Standard & Poor’s 500-stock index fell 7.65 points to 720.99, and the NYSE composite index fell 3.22 points to 380.85. Since reaching a record Nov. 25, the Standard & Poor’s 500-stock index has fallen 4.8%, lowering its year-to-date advance to 17.1%.
The American Stock Exchange’s market’s market value system declined 3.49 points to 572.57.
Among Monday’s highlights:
* Semiconductor, software and computer stocks were the market’s big losers as prices swooned in the final hour of trading.
IBM fell 4 1/4 to 148 5/8, Compaq Computer slumped 4 5/8 to 75 3/8, Dell Computer dropped 2 3/4 to 54 3/8, Texas Instruments slid 3 1/8 to 62 3/8 and Oracle fell 1 7/16 to 42 9/16.
Part of the reason was unexpectedly weak earnings for Circuit City Stores, which reported a 37% profit drop, citing higher costs and weakening sales of personal computers. Circuit City closed down 1 1/4 to 29 3/4. Retailer CompUSA fell 1 1/4 to 18 3/8.
* Boeing vaulted 4 to 100 3/4. McDonnell Douglas surged 10 1/2 to 62 1/2.
Other defense stocks benefited. Northrop Grumman gained 1 1/8 to 80 1/2, GM Hughes Electronics climbed 7/8 to 56 and Raytheon rose 1/4 to 74 1/8.
* Oil stocks helped buoy the market as oil prices rose. Texaco was up 1/4 at 96 1/2, Chevron climbed 1 1/8 to 63 1/8, British Petroleum’s American depositary receipts climbed 2 1/4 to 133 and Anadarko Petroleum rose 3 1/4 to 64 1/4. Exxon, however, was off 1/4 at 94 1/2.
In the commodities market, crude oil and natural gas prices gained as forecasts for freezing weather across the U.S. later this week signaled a surge in demand. Oil jumped $1.27 a barrel to $25.74. Natural gas for January delivery rocketed 62 cents to $4.47 for each million British thermal units, the highest since the contract started trading in 1990.
In overseas trading, the Frankfurt DAX index gained 2%, lifted by the stronger U.S. dollar and higher German bond prices. Tokyo’s Nikkei-225 rose 0.40% and the FTSE-100 in London added 0.54%.
