Blue-chip stocks tumbled Wednesday as Wall Street worried over the next quarterly earnings report from IBM and bond prices fell, sending long-term interest rates higher.
The Dow Jones industrial average fell 132.63 points to 7,719.28, the biggest point drop since the blue-chip barometer plunged 247 points on Aug. 15.
Although the day's losses were heaviest among the blue chips, there was selling in the broader market as well, with the Russell 2,000 index of smaller companies snapping its nine-session streak of record highs. The Russell closed down 0.85 point at 436.90.
Blue chips have been struggling over the last week amid worries about whether third-quarter profits will justify a full recovery to the lofty stock-price levels that preceded last month's downturn.
Of particular concern have been the pronounced economic troubles of many Asian economies and the resulting turmoil on world currency markets.
That situation presents a twofold problem for big multinational companies such as Procter & Gamble and IBM--two of the Dow's biggest decliners on Wednesday--which could be hurt by weaker overseas demand and unfavorable exchange rates as they convert their foreign revenue into dollars.
"The market has been trading [this year] on earnings momentum. If it slows, stocks will go down," said David Shulman, chief market strategist at Salomon Bros.
IBM fell $3 to $97, and P&G;, which also sells many of its products overseas, lost $4.50 to $129.31.
Goldman Sachs & Co. ignited the sell-off with its estimate that IBM would earn 10 cents a share less than expected in the third quarter, saying it was "increasingly concerned" about the direction of the dollar. Currency exchange rates affect the value of overseas sales for big multinational companies.
IBM has not issued any comments on its third-quarter results, which are not due for at least a month, and a spokesman declined to comment on the market speculation, which surfaced on Tuesday.
"A big chunk of these losses in IBM . . . is part of a rolling correction in big stocks that have become overpriced based on too-rosy earnings forecasts," said Thom Brown, managing director of Rutherford Brown & Catherwood.
The downward revision in the brokerage house's estimate of IBM earnings cast a chill over the broader market, affecting technology and small-company stocks, which had been steaming ahead to new highs. Declining issues outnumbered advancers by more a margin of more than 5 to 3 on the New York Stock Exchange, where volume was fairly heavy at 516.68 million shares, up slightly from Tuesday's pace.
The Standard & Poor's 500-stock index fell 14.59 points to 919.03, and the NYSE composite index fell 6.06 points to 480.63.
The technology-heavy Nasdaq composite index, which had closed at record highs the previous three sessions, fell 16.97 points to 1,639.25.
The yield on the 30-year Treasury bond rose from 6.65% from 6.62% on Tuesday. Prices and yields move in opposite directions.
Analysts said the fact that internal market signals remained mixed and did not lurch lower was a comforting sign.
"IBM is a great bellwether and symbol of what's going on often, but it still is just one company, and you cannot make a judgment until you get an accumulation of more data," said William Cheney, chief economist for John Hancock Funds.
He said that until earnings season begins in October, Wall Street may be inclined to be jumpy.
"The mood is predisposed to be nervous and to interpret events as unsettling rather than just shrugging them off as they did a few months ago," Cheney said.
IBM was scheduled to make a presentation at a Salomon Bros. conference after the market closed on Wednesday. The conference was closed to the news media.
Analysts said many investors were also afraid to dip into the turbulent stock market before the appearance of two key reports on Friday--the August producer price index and retail sales.
Among Wednesday's highlights:
* Computer-networking issues led the Nasdaq decline, with Ascend Communications falling $2.56 to $40, Cisco Systems was off $3.50 at $72.50, and 3Com dropped $1.75 to $49.75. Among other Nasdaq technology bellwethers, Microsoft dropped $4.38 to $135.13.
* Bank stocks also declined. NationsBank dropped 81 cents to $58.19, and Citicorp fell $3.06 to $129.
* Investors said U.S. stocks may not reach new highs--the Dow is 5.6% below its Aug. 6 record of 8,259.31--unless next month's third-quarter earnings reports top expectations. Results may be mixed, if Wednesday's news was any indication.
Telemarketing firm APAC Teleservices fell 50 cents to $12.50 after disclosing that the next two quarters' earnings will not meet expectations because of lower revenue and higher costs.
Anchor Gaming, however, jumped $4.75 to $84.13 after it said analyst estimates for the quarter ending Sept. 30 "may be conservative."
In currency trading, the dollar fell sharply against the German mark after a report showed Germany's sluggish economy was gathering speed. But the dollar rose against the yen, reclaiming some ground lost in Tuesday's 2.5% drop.
The dollar ended at 1.7985 marks, down from 1.8140 marks late Tuesday in New York. It rose to 119.31 yen from 118.93 yen.
Overseas, Tokyo's Nikkei 225-stock average rose slightly, Frankfurt's DAX index fell 1.1% and London's FTSE-100 fell 0.9%.
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Blue-chip multinational stocks were Wall Street's favorites between 1994 and about mid-summer. But since then, many have been sinking on fears that the strong dollar and economic turmoil in Asia will depress their earnings. A sampling:
Stock 1997 peak Wed. close Decline from peak Eli Lilly $117.63 $105.19 -10.6% IBM 109.44 97.00 -11.4% Caterpillar 61.63 53.44 -13.2% Procter & Gamble 155.13 129.44 -16.6% Motorola 90.50 74.38 -17.8% Colgate-Palmolive 78.69 63.31 -19.5% Coca-Cola 72.63 57.63 -20.7% Avon Products 78.00 59.06 -24.3% Gillette 106.38 79.00 -25.7% Fluor 75.88 55.63 -26.7% S&P; 500 index 960.32 919.03 -4.3%
Market Roundup, D8