Stocks Retreat Broadly, Led by 20-Point Loss on Nasdaq Market
Blue-chip stocks ended slightly lower Wednesday, masking a fairly broad pullback spurred by growing anxiety about inflation, interest rates and earnings momentum in the sagging technology sector.
The Dow Jones industrial average fell 18.88 points to 6,877.68, erasing most of a 70-point deficit in the last hour of trading.
Investors left broader measures with much steeper losses, however, once again punishing the technology-laden Nasdaq market and migrating away from riskier small and medium-sized companies.
The Nasdaq composite index fell 20.05 points to 1,249.29, its lowest level since December and about 10% shy of Jan. 22’s all-time best close of 1,388.06. “Tech stocks are foremost on people’s minds,” said Bob Dickey, managing director of technical analysis at Dain Bosworth in Minneapolis. “There have been some rumblings by analysts that possibly we’re beginning to see an earnings slowdown for the group.”
The selling momentum appeared to gain as the day wore on, hitting a wide variety of tech stocks. Networking, semiconductor and computer makers all finished with heavy losses.
“Everyone who wanted to sell is sold,” said Gary Kaltbaum, director of technical research at J.W. Charles Securities Inc. “I think we’re bottoming for a bounce, but that said, I don’t know how well we’re going to bounce.”
Bonds, in a delayed reaction to a less-than-reassuring report on consumer price inflation, began sliding midday, lifting long-term interest rates to 6.98%. On Tuesday, the yield on the key 30-year Treasury bond crossed that unsettling benchmark for the first time since September, before pulling back to about 6.96%.
As bond prices fell Wednesday, the yield on the 30-year Treasury bond twice flirted with 7%.
The Labor Department reported Wednesday that consumer prices rose 0.3% in February, with little sign of inflation except in typically volatile categories such as food and energy.
Although the increase was only a notch higher than many economists had anticipated, investors were hoping for a much tamer reading that might keep the Federal Reserve Board from raising interest rates at next week’s policy meeting. Faced with a stream of surprisingly vigorous economic trends that may spur inflation, Fed Chairman Alan Greenspan has warned that the central bank won’t wait for a discernible increase in prices to take action.
Rising inflation or interest rates hurt bonds by making their fixed payoff less attractive. Rising interest rates hurt stocks by slowing consumer spending, raising corporate borrowing costs and drawing investment dollars from equities to bonds.
But not all analysts believe a rate hike is in store.
“The February CPI report won’t change any minds about what the Fed will do,” Bruce Steinberg, manager of Macroeconomics at Merrill Lynch, said in a research note. “We expect the Fed to leave policy unchanged, but we admit it is almost a 50-50 call at this point.”
Declining issues outnumbered advancers by an 8-5 margin on the New York Stock Exchange in heavy trading.
The Standard & Poor’s 500-stock list fell 3.89 points to 785.77, more than 5 points better than the day’s low. The NYSE composite index fell 1.81 points to 413.59.
Among Wednesday’s highlights:
* Leading the tech sell-off were Intel, down 3 3/8 to 133 3/8; Ascend Communications, off 2 3/8 to 45 3/4; IBM, down 1 1/2 to 137 7/8; and Microsoft, down 2 7/8 to 96 3/4.
Other tech issues slid. Compaq Computer fell 2 7/8 to 72, Texas Instruments declined 4 to 76, Dell Computer dropped 1 7/8 to 62 7/8 and Sun Microsystems was off 1 1/2 to 26 5/8.
Bucking the trend in tech stocks was Adobe Systems, up 4 1/8 to 39 after reporting better-than-expected first-quarter earnings.
* The Dow’s weakest issues were consumer products shares: Philip Morris fell 3 3/8 to 122 and Procter & Gamble fell 2 to 122 1/4.
* Also hit hard were transportation stocks, which backtracked sharply from their recent rally. Among the losers was Burlington Northern Santa Fe, which fell 3 7/8 to 78 1/2 after the railroad company warned of weak first-quarter results.
* Airlines also finished lower, hit by profit taking and rising fuel costs. Delta Air Lines fell 3 1/4 to 84 1/2 and United Airlines parent UAL shed 2 1/4 to 68 1/4.
* Lexmark International Group fell 3 7/8 to 23 7/8 after the maker of printers and related products said its first-quarter earnings will meet analysts’ estimates but that revenue will fall short.
Overseas, Tokyo’s Nikkei stock average rose 0.3%, Frankfurt’s DAX index rose 0.8% and London’s FTSE-100 fell 0.6%.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Tech Stocks Get Hammered
Technology stocks have led the market lower in recent weeks, as investors have reacted to warnings of slower growth at some computer networking firms. Declines in key tech stocks and their price-to-earnings ratios based on estimated 1997 earnings:
*--*
52-week Wed. Decline 1997 Stock high-low close vs. high P/E* Xylan $76.00/$17.13 $18.00 --77% 27 3Com 81.38/30.63 32.19 --60 13 Sybase 27.88/13.50 13.75 --51 38 PairGain Tech. 43.25/15.50 23.25 --46 31 Motorola 69.75/44.13 54.88 --37 22 Sun Microsys. 35.13/20.25 26.63 --24 12 Intel 165.00/54.13 133.38 --19 15 IBM 170.13/89.13 137.88 --19 11 Lucent Tech. 60.63/29.75 49.38 --19 24 Compaq 87.88/35.88 72.00 --18 12 S&P; 500 816/627 785.77 --4% 18 Nasdaq compos. 1,388/1,042 1,249.29 --10% NA
*--*
NA: Not available
* Stock price-to-earnings ratios based on analysts’ mean estimates for 1997 earnings per share. 3Com and Sun Microsystems estimates are for fiscal years ending May and June 1998, respectively.
Sources: Bloomberg News, IBES Inc. (earnings estimates)
