Wall Street Blue Chips Hit Hardest; Yields Fall
Blue-chip multinational stocks took the brunt of the selling on Thursday as the U.S. market was routed with others worldwide, on the heels of Hong Kong shares’ deep slide.
The Dow industrials ended down 186.88 points, or 2.3%, at 7,847.77, after trading as low as 7,805.
In contrast, the Russell 2,000 index of smaller stocks--many of which are mostly dependent on the U.S. economy--lost 1.9% for the day, and the Nasdaq composite, also heavy with smaller issues, dropped 2.2%.
Still, there was no mistaking that sellers were in control: Losers swamped winners by 3,466 to 1,008 on Nasdaq and by 2,419 to 586 on the New York Stock Exchange. NYSE volume of 673 million shares was the third-heaviest ever, while Nasdaq volume was the seventh-heaviest ever.
Some people choosing to put money to work on Thursday went for safety: Yields on Treasury securities fell across the board as investors sought to lock in guaranteed returns.
The yield on the 30-year Treasury bond sank 6.30% from 6.42% on Wednesday. The yield on six-month T-bills dropped to 5.35% from 5.42%.
The dollar, however, was mixed: It rose nearly 1 yen, to 121.87 yen, as Asian money appeared to buy dollars. But the dollar lost ground against the German mark.
Meanwhile, gold--often a safe haven in times of turmoil--barely budged, rising just 90 cents to $323 an ounce on the New York Comex.
Analysts said Hong Kong’s sell-off, the latest debacle in the troubled Asian region, sparked particular concern among American, European and Latin American investors because Hong Kong is Asia’s largest market, excluding Japan.
What’s more, trouble there raises risks for China, which many investors have believed would be an engine for world economic growth for years to come.
The heavy selling of some U.S. multinational stocks stemmed from fears that those companies will be particularly affected by any economic slowdown in Asia, as devalued currencies in much of the region slash the countries’ purchasing power.
In the Dow index, losers were led by such multinational giants as Alcoa, down $3.50 to $77.25; GE, down $2.06 to $67.38; IBM, down $4.75 to $100.38; and United Technologies, down $3.19 to $76.63.
Among other companies that do substantial business overseas, Fluor fell $2 to $50.94, Citicorp lost $7.13 to $136.88, Northwest Airlines sank $2.94 to $46.13 and Motorola fell $2.75 to $65.38.
Investors also were troubled by some reports among the continuing flood of third-quarter earnings reports. Although overall earnings so far are up about 14% versus a year ago for blue chip companies, firms that fail to meet or exceed analysts’ targets have been hammered, amid growing sensitivity to prospects for slowing profit growth in 1998.
On Thursday, stocks down sharply on earnings reports included First Data, off $6 to $30.13, and prison operator Corrections Corp. of America, down $9.56 to $32.
Some analysts said that with U.S. stocks still up sharply year-to-date--the Dow’s gain is 22% since Jan. 1--knee-jerk profit-taking isn’t a surprise.
“This rout in Asia comes against the backdrop of a U.S. stock market that has been extraordinarily strong for a long, long period of time,” said Thomas Larsen, a money manager at Desai Capital Management in New York, which oversees $1 billion. “Most managers know that we were statistically ripe for some sort of pullback. All we needed was an excuse to have one.”
Looking for a bright spot, some bulls found one: The Federal Reserve Board may now be less inclined to raise interest rates, because lower import prices and weaker Asian demand for U.S. goods will lessen chances of an overheating economy.
