Dow Ends a Wild Day Down 92; Yields Fall
U.S. blue-chip stocks continued their violent descent Thursday, unable to turn around despite a drop in bond yields.
And with stock markets tumbling in Asia, Europe and much of Latin America as well, some analysts are fearful of what will happen when many American and European investors return from summer vacations next week.
The Dow Jones industrial average slumped 92.90 points, or 1.2%, to 7,694.43 in another wild session that saw big-name stocks buffeted by computerized program trading.
Thursday’s losses left the Dow at its lowest level since June 30, and wiped out all of the rebound that followed the index’s 247-point plunge Aug. 15.
The broad market wasn’t as weak. Falling stocks outnumbered winners by just 15 to 13 on the New York Stock Exchange. And as has been true in recent sessions, key measures of smaller stocks closed higher despite blue chips’ woes. The Russell 2,000 index of smaller stocks, for example, added 0.75 point to a record 421.59.
Still, the continuing declines in many of the big-name multinational stocks that have led the bull market since 1994--the Coca-Colas and Gillettes--are worrying Wall Street analysts who fear that many more investors are waiting in the wings to take profits in those stocks.
“The Nifty Fifty are breaking down,” said Richard Eakle, technical market analyst at Eakle Associates in Fair Haven, N.J.
What’s more, reports from major mutual fund companies Thursday showed that individual investors have become much warier of the stock market in recent weeks, and their net purchases of stock fund shares have declined sharply after soaring in July.
High cash flow into mutual funds has helped drive the bull market in recent years.
Analysts note that investor confidence this month hasn’t been helped by the Dow’s wild swings, which continued Thursday.
Investors were whipsawed as the Dow first tumbled 128 points, recovered to rise 24 points and then beat a zigzag retreat to close 92.90 points lower.
“Volatility is the name of the game,” said Alan Ackerman, market analyst at Fahnestock & Co. “This market has already established itself as king of swing.”
The New York Stock Exchange imposed its “uptick” rule, which curbs some computer-guided trading in an attempt to stabilize the market, a record four times on Thursday. The rule is imposed when the Dow falls 50 points and is lifted when the loss is pared to 25 points.
Computerized program trading, a catch-all term for the various computer-driven methods that big investors use to trade baskets of stocks at one time rather than piecemeal, has triggered tremendous volatility in recent weeks.
Some analysts say that with trading volume overall depressed because so many investors are on vacation, the programs’ effects have been exaggerated. Others say the volatility could be a warning sign of a market top, as investors’ conviction about the bull market wanes.
“There’s no great conviction about what’s going on--you can tell by the low volume. It’s been another erratic day in an erratic week,” said Arthur Cashin, a PaineWebber trader.
Stock traders’ biggest disappointment Thursday was that the Dow couldn’t find its legs despite a drop in bond yields, after the government’s revised report on second-quarter economic growth showed more strength than originally estimated but with no upward revision in inflation data.
Bond yields fell across the board, with the yield on the 30-year Treasury bond sliding to 6.58% from 6.65% on Wednesday.
Complicating matters for stocks, analysts said, was a series of negative profit outlooks in the technology sector, as well as turbulence in overseas equity markets and nagging worries about the dollar’s recent decline in foreign exchange trading. A weak dollar can make the payoff on U.S. investments less enticing in other currencies.
Technology stocks were hit hard, with the Nasdaq composite index closing down 14.22 points at 1,581.32 after chip maker Altera Corp. warned of disappointing third-quarter revenue. Since Altera’s customers include bellwether computer companies, the news raised concerns that computer equipment purchases are slowing, sending most technology stocks lower. Altera plunged $9 to $52.38.
Meanwhile, worries are mounting that the collapse of Southeast Asian stock markets will slow economic growth dramatically in that region, hurting earnings of major U.S. multinational stocks.
In the wake of recent earnings warnings from Coke and Gillette, analysts say the decline in big-name stocks may only be beginning.
It’s a “bear market for the big-capitalization stocks,” said E. Wayne Nordberg, a money manager and partner at Lord Abbett & Co. in New York, which oversees about $25 billion. “Investors had priced in perfection for these companies, and now they seem less than perfect.”
Others are still taking a constructive view about the Dow’s pullback, noting that money continues to seek out less-expensive smaller stocks.
Blue-chip stocks “just got ahead of themselves,” said Bob Finch, a money manager with Aeltus Investment Management, which oversees $40 billion. “The market was up about 20% in three months. Thank God they’re correcting and getting us back on a more orderly path.”
Among Thursday’s highlights:
* Asian markets’ fresh declines were triggered in part by Malaysia’s imposition of new restrictions on trading in key stocks--an attempt to dampen volatility, but one that apparently backfired, as the Malaysian market’s main index dove 4.2%. The rest of the region’s markets followed.
* European and Latin American markets also were sharply lower as bearish sentiment spread. Those markets have been among the hottest stock markets for much of this year.
In Germany, the main stock index sank 0.6%, while France’s index dropped 1.5%. In Mexico City, the Bolsa index tumbled 2.5% to 4,789.
* On Wall Street, technology shares were broadly lower after Altera’s announcement. IBM fell $2.75 to $101.13, Intel lost $1.69 to $92.38, Microsoft dropped $2.50 to $132.06 and Hewlett-Packard was off $1.44 to $61.06. Also, Xilinx fell $2.69 to $48.31 and Vitesse lost $2.19 to $46.
Adding to concerns about tech shares was a Wall Street Journal story on Motorola. It said investors are concerned about slowing growth and delayed delivery of new wireless phone technology. Motorola dropped $1.38 to $74.63.
* Among blue-chip multinationals, Gillette sank $1.75 to $82.88, bringing its decline from its recent high to 22%--a bear market decline by any measure.
Coke lost 38 cents to $58.25, Procter & Gamble fell $1.38 to $134.88 and Caterpillar sank $2.25 to $57.81.
* Bank stocks tumbled despite declining bond yields--another worrisome sign, some analysts said. Wells Fargo lost $3.88 to $250.13, and Citicorp was down $3.94 to $127.63.
But Barnett Banks rose $2.38 to $54.81 on speculation that another bank, possibly Banc One, might buy the largest bank in Florida.
* Smaller stocks showing strength included Barnes & Noble, up $1.13 to $46.75; Penske Motorsports, up $1.13 to $34.38; Petco, up $1.63 to $30; and Align-Rite, up $1.50 to $18.50.
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Market Roundup, D6
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Deepening Slide
Blue-chip multinational stocks, the market’s leaders since 1994, are in the midst of a sharp sell-off as worries mount about the companies’ earnings prospects. Morgan Stanley index of 50 major multinationals, weekly closes and latest:
Thursday close: 492.05
Source: Bloomberg News
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* PULLING BACK: Stock mutual fund inflows declined in August, a report says. D4
