Dow’s Latest Tumble Erases Most of 1997’s Remaining Gain
Where did all the bulls go?
The Dow Jones industrial average took its third big spill in four sessions Wednesday, wiping out almost all that remained of this year’s robust gains.
The Dow slumped 94.04 points, or 1.4%, to 6,517.01, trimming 1997’s once-healthy advance to just 1%. Less than a month ago, when it set an all-time high at 7,085.16, the blue-chip barometer was sporting a 10% year-to-date gain.
Broader market measures also pulled back sharply in the volatile session, which saw the Nasdaq composite index sink 15.93 points, or 1.3%, to 1,201.00--its lowest level since September.
Declining issues outnumbered advancers by more than a 2-1 margin on the New York Stock Exchange, although trading volume eased--indicating slow, methodical selling rather than panicked activity.
“Everybody has their horns pulled in,” said Arnie Owen, director of equities at Kaufman Bros.
The market has been battered over the last week by rising interest rates, as the Federal Reserve Board tightened credit for the first time in two years to slow the fast-growing U.S. economy.
Although many investors expected the stock market to pull back from its record highs of the first quarter, the speed of the decline is taking some by surprise.
“Intellectually, most people felt a ‘correction’ would be a good thing for the market,” said Russ Labrasca, senior vice president at Principal Financial Securities of Dallas. “But now that we’re in the midst of one, no one is pleased with the pain that goes along with that correction.”
After plummeting nearly 300 points between last Thursday and Monday, the Dow rallied meekly on Tuesday, adding 27 points. But on Wednesday stocks sank again in the morning, tried to rally in the afternoon, then faded near the close.
The Dow now is off 568 points, or 8%, from its record high. The Nasdaq composite is down 13.5% from its peak.
Stocks were pressured again Wednesday by the bond market, where long-term interest rates flirted with another six-month high after fresh reports of economic strength. (Story, D3.)
The yield on the bellwether 30-year Treasury bond edged as high as 7.10%, threatening to break Monday’s six-month high of 7.09%. But buyers entered the market again late in the day, and the T-bond yield ended at 7.07%, unchanged from Tuesday.
The bond market appears to be benefiting from stocks’ woes, analysts say, as some investors are cashing in stocks to buy bonds at higher yields.
But the bond market faces a major test Friday, when the government reports on March employment trends. If the report is stronger than expected, it could boost expectations that the Fed will have to tighten credit much more to slow the economy.
Some investment firms are already warning clients that interest rates are poised to rise further.
“We expect more rate increases coming around the world,” said Thomas Luddy, chief investment officer at J.P. Morgan Investment Management. “That’s important because the bull markets in the U.S. and around the world have been fostered by very easy central bank policies. We are moving from a global tail wind to a global head wind” against stocks, he said.
Among Wednesday’s highlights:
* Financial services concerns, whose profits can be squeezed by rising interest rates, were again among the most prominent losers. In the Dow index, J.P. Morgan fell 3 to 96 7/8, Travelers Group sank 2 5/8 to 47 1/4 and American Express dropped 2 to 58 1/2.
Among banks, Wells Fargo lost 4 7/8 to 278 1/8, Norwest lost 1 3/8 to 45 7/8, Citicorp dropped 2 1/4 to 109 7/8 and Sumitomo lost 1 1/2 to 26 1/2.
* Energy-related stocks slumped as crude oil prices tumbled. (Investor Spotlight, D8.) Exxon fell 2 1/8 to 104 3/4, Chevron dropped 1 7/8 to 67, Schlumberger slid 3 3/8 to 106 5/8 and Mobil lost 2 1/8 to 128 7/8.
* Technology stocks, among the worst-hit issues in recent weeks, fell further. Intel lost 2 5/16 to 137, Microsoft fell 1 1/4 to 92, IBM was off 3 to 133 3/4, Compaq dropped 2 to 72 3/4 and Computer Sciences gave up 1 1/4 to 61.
Several smaller tech firms joined a growing list of companies warning of weaker-than-expected first-quarter earnings. Wednesday’s casualties included Project Software & Development, down 15 15/16 to 15 5/16; FileNet, off 4 7/8 to 11; and Triteal, down 3 1/4 to 6 5/8. After the close of trading, two more names joined the earnings-warning list: Mathsoft and Diamond Multimedia.
* On the upside, some consumer products stocks rallied as investors hunted for companies likely to meet earnings expectations. Winners included Gillette, up 1 1/4 to 77 1/2; Clorox, up 7/8 to 113 7/8; and Colgate-Palmolive, up 1 to 103 5/8.
But drug and food stocks were broadly lower.
In currency trading, the dollar was boosted by a mixed Japanese economic report and fresh strength in U.S. economic data. In New York, the dollar settled at 123.25 yen, up from 121.76 on Tuesday.
In foreign stock trading, many world markets finished higher, tracking Tuesday’s modest U.S. rally.
