Profit Taking Halts Dow Run; Bonds Stable
Blue-chip stocks ran into a wall of selling Wednesday as profit taking halted the market’s three-session comeback after last week’s headlong fall.
In a mirror image of Tuesday’s lackluster session, the Dow Jones industrial average traded nearly unchanged until the final hour, but this time sank into the close, falling 45.32 points to 6,563.84 and wiping out most of the previous day’s gain.
Broader stock measures turned mostly lower in the afternoon as technology shares, which have powered the market’s attempt to recover from a sell-off that sliced 630 points off the Dow, faltered after a four-session rally. Smaller-company shares fared better than blue chips. Financial service stocks were also hard hit.
“You’ve got people doing some selling because they got a bounce off the lows on many stocks,” said Barry Berman, head trader for Robert W. Baird & Co. in Milwaukee, noting that Friday’s reports on wholesale prices and retail sales activity have begun to loom over the market.
In the bond market, J.C. Penney Co., New York City and other borrowers sold more than $5 billion of new debt, even as U.S. bond yields hovered near seven-month highs.
J.C. Penney, the day’s biggest borrower, raised $2.5 billion in a six-part issue. New York, in the biggest municipal bond issue this year, sold $1 billion of tax-exempt bonds in maturities ranging from one to 30 years.
Treasury bonds were little changed. The benchmark 30-year Treasury bond yield was 7.10%, the same as Tuesday. Investors took little comfort from a strengthening dollar and focused instead on the chance the Federal Reserve Board will raise rates at least once more to keep inflation at bay.
“The market is still vulnerable,” said Leonard Lovito, who manages about $600 million of bonds at J&W; Seligman & Co. “Based on the numbers we’ve been receiving, there’s a good likelihood the [Fed] goes again in May,” he said, meaning the central bank will probably raise rates at the next scheduled policymakers meeting May 20.
While many analysts generally view the stock market’s recent woes as part of a correction, there is mounting evidence the pullback is taking a toll on investors.
According to a newly released survey by financial services company Quick & Reilly, 39% of investors described themselves as bullish, down from 58% in January.
Those expressing a bearish market outlook rose to 31%, up from 20% three months ago. The survey shows the prevailing investor mood as “conservatism rather than panic,” Quick & Reilly said.
The stock market’s recent ills were also reflected in a $2.4-billion drop in assets at Fidelity Investments’ flagship Magellan Fund. The firm said the fund’s assets fell to $51.4 billion at the end of March from $53.8 billion in February.
Advancing issues outnumbered decliners by a slim margin on the New York Stock Exchange, where volume was moderate. The average share was down 21 cents. The Standard & Poor’s 500-stock list fell 5.52 points to 760.60, and the NYSE composite index fell 2.02 points to 400.29.
The technology-heavy Nasdaq composite index fell 7.94 points to 1,249.43, halting a four-session winning streak.
The Russell 2,000 list of smaller companies rose 0.76 point to 346.73.
Among Wednesday’s highlights:
* The Dow’s decline was paced by Merck, down 3 3/4 to 81 1/2, on concern that its best-selling cholesterol drugs are losing market share to a new medication from Warner-Lambert, which rose 1 3/8 to 94 7/8.
Other drug issues followed Merck’s lead. Eli Lilly fell 2 3/8 to 79 7/8, Pfizer declined 2 to 84 and Schering-Plough fell 1 3/8 to 72 3/4. The Standard & Poor’s drugs index fell 3.2%.
* IBM, the Dow’s strongest issue in the previous two sessions, pulled back sharply, falling 3 1/2 to 133 1/8 as the blue-chip average’s second-weakest issue after Merck.
Those losses offset a big gain by Procter & Gamble, which jumped 4 to 199 3/4 on news it was acquiring Tampax tampon maker Tambrands for $1.85 billion, or $50 a share. Tambrands rose 2 to 48 1/2.
* Among leading Nasdaq technology issues, Intel fell 4 23/64 to 142 1/4 and Cisco Systems fell 1 5/16 to 54 1/16.
Computer disk drive maker Seagate Technology fell 2 5/8 to 49 3/8 on fears of slowing demand for technology products. Other disk drive makers struggled as well, including Western Digital, which rose as high as 70 1/2 before falling back to 68 3/8, up 5/8.
* Transportation stocks were higher, paced by rallies in railroad companies CSX, up 1 1/2 to 45 3/4, and Norfolk Southern, up 1/4 to 87 1/8, in the wake of their agreement to split up Conrail, which rose 3/8 to 113 3/4.
* A number of interest-rate-sensitive bank issues rose. NationsBank lost 1 3/8 to 57 1/4, Wells Fargo dropped 8 1/4 to 276 and First Union fell 1 5/8 to 82 5/8.
* McDonald’s fell 1/4 to 49 5/8 after the world’s largest fast-food chain said in its annual report that U.S. sales at stores open at least a year fell 6.4% last year.
* Dynamics Corp. of America gained 3 3/4 to 43 7/8 after WHX said it sweetened its hostile bid for the appliance maker to $45 a share, from its earlier offer of $40 a share. WHX eased 1/8 to 6 7/8 on the NYSE.
In currency trading, the dollar rose to a 4 1/2-year high against the Japanese yen and a three-year high against the German mark as fears eased that central banks would intervene to end its climb.
In New York trading, the dollar reached its highest level against the yen since August 1992 before settling at 126.77 yen, up from 126.23 on Tuesday.
The dollar hit 1.7270 marks, its highest level against the German currency since February 1994, before ending at 1.7255 marks, up from 1.7155 the previous day.
Overseas, Tokyo’s Nikkei stock average fell 1.8%, Frankfurt’s DAX index rose 0.9% and London’s FTSE-100 rose 0.5%.
