Dow, Nasdaq Rally; Latin America Reels
As the Dow Jones industrial average moved within 25 points of the 8,000 mark Tuesday and the Nasdaq rally continued in the U.S., Latin American stock markets fell, led by an 8.5% drop in Brazil’s major index, as investors worried that currency devaluations in Asia might spread to other emerging markets.
In the U.S., strong gains in technology stocks helped the Nasdaq composite index rack up its ninth consecutive high close. The Dow ended up 52.73 points at 7,975.71, surpassing its July 8 record finish of 7,962.31.
Tech stocks extended their dominance, with Hewlett-Packard Co. ranking as the Dow’s strongest component for a third straight day, climbing $3.50 to $68.56.
“There is a growing conviction the [technology] group is going to do better earnings-wise later in the year and into 1998,” said Al Goldman, an analyst at A.G. Edwards & Sons.
Indeed, shortly after the close, Intel reported second-quarter earnings of 92 cents a share, two cents higher than First Call’s consensus analyst estimate.
The Dow appears to have overcome some concerns that the soaring dollar, which has approached six-year highs against the German mark, might eventually erode profits of multinational corporations.
While analysts acknowledged that a high dollar could become a burden at some point, many argued that the currency also brings near-term benefits that will offset longer-term profit concerns for stocks.
“The dollar’s rise . . . hurts the profit outlook of big multinationals but valuations of our markets are helped because foreign buyers come in,” said Pierre Ellis, economist at Primark Decision Economics.
Fear of currency devaluations in more emerging markets was blamed for the plunge in Brazilian stocks, where about $25 billion was shaved off the market’s total share value.
Sao Paulo’s Bovespa index plummeted 1,081 points, or 8.5%, to 11,617, the market’s steepest decline in nearly 2 1/2 years.
“People are selling first and asking questions later,” said Francois Gour, an economist at Caspian Securities, adding that there is little risk of currency devaluation in Brazil.
Investors, though, weren’t listening to economists. “The situation is purely emotional, a situation of desperation,” said Jose Eduardo Abreu, who manages $35 million in equities at Deutsche Bank in Sao Paulo.
Mexican stocks also fell sharply Tuesday, with the Bolsa falling 82.72 points, or 1.73%, to 4,694.35.
Analysts said Mexican shares had fallen in part because dealers have been taking profits since Friday, after eight consecutive record highs.
“The adjustment underway since Friday was almost inevitable, and was exacerbated by the falls in Brazil, but we have stood up well compared to other Latin American markets,” said Felix Boni, head of research at ING-Barings in Mexico. The Argentine Merval blue-chip index fell 3.37% to 807.91, while the IPSA selective index in Chile was down 2.57% at 131.25 points.
Grey Newman, James Capel’s chief economist for Mexico, said the ills affecting the Brazilian stock market have limits because Mexico did not have a burgeoning trade deficit like Brazil’s.
Among U.S. market highlights:
* In a strong technology rally, Microsoft Corp. was up $2.53 at $138.47 and Cisco Systems Inc. rose $1.41 to $77.97. IBM Corp. rose 75 cents to $96. Compaq Computer Corp. and Dell Computer Corp. bucked the trend, as Compaq fell $1 to $127.25 and Dell fell $1.44 to $141.44.
* Merrill Lynch & Co. rose $2.13 to $66.06 after reporting its highest quarterly profit ever.
* CCA Prison Realty Trust rose $7.88 to $28.88 in its Wall Street debut. The real estate investment trust focuses on private prison properties.
Overseas, Tokyo’s Nikkei stock average fell 0.8%, Frankfurt’s DAX index fell 0.1% and London’s FTSE-100 rose 0.9% to a new high.
