Stocks Decline, Burdened by Profits Anxiety

U.S. stocks fell Wednesday on concern that shares have risen faster than justified by the outlook for profits.

“Everybody’s anxious, and the market is going to reflect the most recent news,” said Gary Campbell, chief investment officer at Kansas City, Mo.-based Commerce Bank, which oversees $7 billion. Investors are preoccupied with warnings from Delta Air Lines and other companies that third-quarter profits will be lower than expected.

The Dow Jones industrial average fell 63.35 points, or 0.8%, to 7,906.71. The Dow is 4.3% below its Aug. 6 record of 8,259.31, though it’s still up 23% for the year.

Brokerage stocks such as Donaldson, Lufkin & Jenrette rallied after news of Travelers Group’s $9-billion agreement to buy Salomon Bros. Travelers fell $2.44 to $69.63, leading the decline in the Dow.

Stocks rose in early trading on optimism sparked by falling bond yields, then slumped after noon.

There’s plenty of fuel to eventually push prices higher. Cash is pouring into U.S. equity mutual funds at a pace to set a record this month, according to Mutual Fund Trim Tabs, which tracks fund flows.

The Standard & Poor’s 500 index fell 7.45 points, or 0.8%, to 944.48, and the Nasdaq composite index lost 9.95 points, or 0.6%, to 1687.41.

The Russell 2,000 index of smaller stocks fell 0.84 point to 448.58, ending a string of eight records.

Brokerages and investment banking firms gained as Travelers’ agreement to buy Salomon highlighted the acquisition wave sweeping Wall Street. U.S. and foreign banks have been scrambling to buy brokerages this year as walls come down between the banking and brokerage industries. Salomon jumped $4.75 to $76.25.

Donaldson, Lufkin & Jenrette rose $2.13 to $66.06, A.G. Edwards & Sons gained $2.44 to 48.88, Bear Stearns rose 44 cents to $43.19, Lehman Bros. Holdings gained 75 cents to $49.38, Merrill Lynch jumped 88 cents to $71.44 and PaineWebber rose $1.19 to $43.81.

Bankers Trust New York, a commercial bank that rose 11% last week on speculation that Travelers was considering a bid for it, fell $1.88 to $122.31.

In another acquisition announcement, Tejas Gas soared $9.81 to $59.81 after Shell Oil agreed to buy the natural gas company. Shell plans to pay $61.50 a share, or $1.45 billion, in cash, and assume about $900 million in debt and preferred stock.

Most large computer-related companies fell, with Intel dropping $3.50 to $95.63 and Microsoft losing $3.06 to $132.44.

Stocks declined even as bond prices rose almost a full point. A Treasury sale of $11.5 billion of five-year notes met with strong demand, sending the yield on the 30-year bond down to 6.31%, an eight-week low, down from 6.35%.

Aetna fell $1.06 to $92.63, after falling 8.8% on Tuesday amid concern that its profit will be disappointing. The company is expected to report earnings in early November.

3Com rose 56 cents to $52.56 and was the most active stock in U.S. trading, after the computer-networking company reported profit before a charge for its fiscal first quarter ended Aug. 31 of 48 cents a share, matching the average analyst estimate. 3Com rose $1.63 to $52 on Tuesday ahead of the news.

On its first day as a public company, Avis Rent A Car jumped $5.75 to $22.75, benefiting from the company’s low initial price and the success of rival Hertz’s initial public offering.

Gucci Group fell $11.25 to $47 after the Italian apparel company said economic troubles in its largest Asian markets may dent sales of its leather bags, scarves and clothing.

In other markets, coffee traders shrugged off a drop in retail prices by Folgers, a major roaster. At the Coffee Sugar and Cocoa Exchange in New York, December coffee ended down 0.20 cent a pound at 168.65 cents.

On overseas exchanges, London’s FTSE-100 closed at 5,077.2, up 49.7 points, or 0.99%. Tokyo’s 225-share Nikkei average closed at 18,420.08, up 218.76 points, or 1.20%, and Hong Kong’s Hang Seng index closed at 14,205.44, up 111.06 points, or 0.79%.

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Market Roundup, D8