Inflation Stable, but Dow Still Falls 47.33
Blue-chip stocks fell Wednesday after news that inflation was still in check in January failed to ignite another record-setting rally.
The Dow Jones industrial average ended 47.33 points lower at 7,020.13, one day after racing to an all-time high of 7,067.46.
Analysts said computer-driven selling probably contributed to the sharpness of the decline, perhaps related to portfolio adjustments by big investors ahead of Friday’s expiration of options.
More fundamentally, investors remained concerned that a downward correction may be in the offing from the inflated stock prices of the last several months.
Meanwhile, the market showed little response to news announced during midafternoon trading that China’s paramount leader Deng Xiaoping was dead.
“I think in the West, Deng was largely viewed as a figurehead, so I wouldn’t expect much reaction,” said Michael Metz, chief investment strategist at Oppenheimer & Co. “It’s really been several years since he faded to the background, and the power there has already been passed on to others.”
A lackluster performance in the bond market--despite news that the consumer price index, one of the key measures of inflation, rose only 0.1% last month--probably served as a catalyst for the sell-off in stocks.
“I think the bond market’s failure to respond to that news was part of the problem,” Metz said. “It certainly might have been the excuse to take some profits in stocks.”
As the price of the 30-year Treasury bond fell, its yield rose to 6.58% from 6.54% Tuesday.
Advancing issues barely outnumbered decliners on the New York Stock Exchange, where volume was 519.30 million compared with 474.07 on Tuesday.
The Standard & Poor’s 500-stock index was down 3.82 to 812.47 while the NYSE composite index fell 1.50 to 425.57. Both had reached new highs Tuesday.
The Nasdaq composite was down 0.21 to 1,365.58. The American Stock Exchange market value index held onto its earlier gains, closing at 599.15, up 1.05.
On the New York Stock Exchange, advancing issues barely outnumbered decliners in heavy trading.
The Standard & Poor’s 500-stock index was down 3.82 to 812.47 while the NYSE composite index fell 1.50 to 425.57. Both had reached new highs Tuesday.
The Nasdaq composite was down 0.21 to 1,365.58.
The Russell 2000 Index, considered by investors to be the best measure of small stock performance, rose 0.12 to 370.17.
Peter Cardillo, director of research at Westfalia Investments in New York, suggested that some market players were concerned about Wednesday’s government report on U.S. trade, which showed that the deficit rose more than expected in December, increasing nearly 30% to $10.3 billion.
“Exports were down and imports were up and that means the economy is definitely slowing. And that raises question marks on future earnings,” he said.
Among Wednesday’s highlights:
* U.S.-listed shares in China-related funds showed little reaction to the news of Deng’s death. Templeton China World Fund dipped 1/4 to 12 7/8 and Jardine Fleming China Region Fund was unchanged at 11 5/8.
* Among Dow components, Procter & Gamble and IBM led the decline. P&G; lost 2 3/8 at 127 1/8. IBM declined 1 5/8 at 143 5/8.
* Technology issues generally outperformed the broader market, helped by Hewlett-Packard’s strong quarterly earnings. HP rose 2 3/16 to 54 3/8. Compaq Computer rose 1 7/8 to 85 3/8 and Sun Microsystems gained 15/16 to 34 11/16.
Digital Equipment rose 1 1/8 to 34 5/8 after it said it will spin off its TracePoint Technology Group into an independent unit.
* Financial issues were generally weak after their torrid run since the start of the year. First Union slipped 3 1/8 to 92 1/2 and Bank of New York fell 1 3/8 to 39 3/4.
Meanwhile, a day after making a $6.5-million bid for Great Western Financial, H.F. Ahmanson fell 1 3/4 to 43 1/8. GW rose 1/8 to 45.
First Patriot Bankshares rose 1 1/2 to 16 1/4 after agreeing to be bought by United Bankshares, which was unchanged at 33 1/2.
* WMX Technologies fell 5/8 to 34 after the company said ServiceMaster will buy back from WMX its entire ownership interest for $626 million in cash.
Overseas, Mexican stocks notched their fourth record close in six sessions after strong economic data sent local and foreign bulls into the market, traders said.
Mexico’s Finance Ministry announced shortly before the opening bell that full-year 1996 gross domestic product was up 5.1% cent from 1995, and fourth-quarter figures were up 7.6% in year-ago terms. That sent Mexico City’s bolsa up 32.34 points, or 0.84% to close at 3,875.04.
