Blue Chips Shed 119; Techs Rally
The Dow Jones industrial average raced lower Wednesday as investors took profits after the blue-chip market failed for the second straight day to punch through the 8,000 mark.
A strong performance by tech stocks lifted the Nasdaq composite index to another record high, but other broad indexes edged lower.
Bond prices rose, although the government’s first sale of five-year, inflation-indexed notes bombed with investors.
The Dow ended down 119.88 points at 7,842.43. An early rally stalled at 7,991.26. The sell-off more than erased the previous day’s 103.82-point surge.
Declining issues outnumbered advancers by a 3-2 margin on the New York Stock Exchange in heavy trading.
With the Dow unable to rally through the magic 8,000 level, investors began to take profits in earnest, and the afternoon was marked by a wave of sell programs that briefly dragged the Dow below 7,800.
“This was just a bit of a big-cap correction,” he said. “We had a very, very big move; a lot of these stocks had gotten overvalued and now some money is coming out.”
Analysts said the blue-chip market may pause but appears to have enough backing to rally the Dow through 8,000.
Positive earnings forecasts from leaders in the technology sector lifted the Nasdaq index 1.53 points to 1,486.63, its fifth consecutive closing record high.
The Standard & Poor’s 500 list was down 11.21 points at 907.54, and the New York Stock Exchange composite index was down 5.46 points at 473.03.
In the bond market, investor demand was moderately strong for the first issue of five-year Treasury notes designed to protect buyers from inflation. Investors balked at the $8-billion sale, forcing the government to pay a yield of 3.744% on top of the inflation rate. That’s less expensive for the Treasury than selling five-year notes that pay a fixed interest rate.
The bonds sold poorly because investors aren’t convinced they need an insurance policy against rising prices. “There is no inflation. Who needs protection?” said Gerald Thunelius, who manages $1.5 billion in bonds at Dreyfus Corp.
The yield on the benchmark 30-year T-bond fell to 6.56% from Tuesday’s 6.58%.
Among Wednesday’s highlights:
* Leading the Dow decliners were Merck, down $2.75 at $101.19; AlliedSignal, down $2.50 at $84.88; and DuPont, down $2.06 at $63.
* Technology stocks bucked the trend, with IBM up 50 cents at $96.25 and Hewlett-Packard up 19 cents at $57.94. The two tech stocks and Boeing, up 6 cents to $56.19, were the only Dow industrial stocks to rise.
* Philip Morris fell $1 to $43.44 after President Clinton and public health groups said the proposed $368.5-billion tobacco settlement would place unacceptable limits on the Food and Drug Administration.
* Oil stocks fell after the International Energy Agency said it expects the market to soften in the second half of 1997.
Crude oil for August delivery fell 27 cents to $19.46 a barrel. Exxon fell $1.56 to $62 and Chevron fell $1.38 to $74.38.
In currency trading, the dollar eased against the Japanese yen after Japan said its current account surplus more than doubled in May, heightening concern about rising exports to the United States.
The dollar also retreated against the German mark, after extending its recent rally to a 3 1/2-year high. It closed at 1.7605 marks, off from 1.7612.
The dollar ended at 112.77 yen, down from 112.87 at Tuesday’s close in New York.
In overseas markets, London’s FTSE-100 closed at 4,762.4, up 3.9 points, or 0.08%. Tokyo’s 225-share Nikkei average closed at 19,697.17, down 156.72 points, or 0.79%.
