Stocks Plunge as Fears About Brazil Intensify
U.S. stocks tumbled in a late-day rout Thursday, led by computer, financial services and drug shares and sparked by concern that Brazil will be the next catalyst for a global flight from equities.
The Dow Jones industrial average fell 184.86 points, or 2%, to 8,879.68, with two-thirds of the loss coming in the last hour of trading. The drop marked the second time this week that the average lost at least 2%, and the first time it closed below 9,000 since Nov. 17.
Brazilian legislators’ failure to pass a measure designed to shore up that country’s ailing economy sent J.P. Morgan and other financial company stocks tumbling. Financial shares had just recovered from Russia’s debt default in August, and “Brazil is the next big domino to fall,” said Alan Kral, a portfolio manager at Trevor Stewart Burton & Jacobsen Inc.
U.S. bond prices rose for a seventh day--the longest winning streak since September 1993--as falling stock prices whetted demand for the safety of Treasuries.
“We don’t feel we’re out of the flight-to-quality environment,” said Ken Anderson, of Evergreen Asset Management in Purchase, N.Y.
The yield on the benchmark 30-year Treasury bond fell to 5%, from 5.02% on Wednesday. Yields on two-year notes, the most actively traded Treasuries, fell to 4.30% from 4.34%.
The Standard & Poor’s 500 index dropped 21.11 points, or 1.8%, to 1,150.14. The Nasdaq composite index fell 40.88 points, or 2.1%, to 1,954.33 as computer-related shares such as Microsoft and Intel dropped, erasing earlier gains.
Almost twice as many stocks fell as gained on the New York Stock Exchange.
J.P. Morgan fell $4.06 to $107.25, and American Express dropped $4.13 to $96.63; together they accounted for one-fifth of the Dow’s decline. Merrill Lynch slumped $3.75 to $69.50. Many bank and brokerage stocks lost 50% or more of their value when financial markets tumbled in August and September on concern about slowing global economic growth and the possibility of currency devaluations.
Dell Computer fell $2.31 to $63.88, although the stock is still up more than 200% for the year through Thursday, making it the biggest gainer within the S&P; 500. Microsoft fell $4.63 to $122.13, though it’s still up 89% for the year; and Intel fell $4.06 to $109.50, leaving it up 56% for the year to date.
“People are nervous about Brazil, and when they have a serious concern, they sell the biggest gainers,” said Anthony Conroy, director of equity trading at BT Global Asset Management, a unit of Bankers Trust Corp. Computer-related stocks “had a huge run-up, and now that the market has turned, they are leaders on the way down,” he said.
Xerox, which made 10% of its 1997 sales in Brazil, fell $4.69 to $104.56. U.S. companies are the biggest foreign investors in Brazil, and Brazil is the 11th-largest market for U.S. exports.
Concern about Latin America overshadowed a round of interest-rate cuts by 11 European central banks meant to help keep the region growing as it prepares for monetary union.
“The European central banks are reacting to how bad the situation is,” said Joe Stocke, senior portfolio manager at Meridian Investment Co. in Valley Forge, Pa. “The talk about a possible worldwide recession next year is unnerving people.”
Among Thursday’s highlights:
* Local telephone companies jumped after Merrill Lynch analyst Daniel Reingold raised his ratings on several of them to “buy.” Bell Atlantic climbed $1.50 to $56.38, Ameritech gained 94 cents to $55.88 and GTE gained $3.13 to $65.63. Lucent Technologies, which makes telecommunications systems, gained $1.63 to $88.38.
Reingold said he raised his ratings because he expects the companies to post earnings growth of 10% to 12% next year, yet the companies’ price-to-earnings ratios are low compared with that of the S&P; 500.
* Drug stocks declined. Schering-Plough fell $3.25 to $53.44, Eli Lilly lost $5.13 to $83.75 and Warner-Lambert fell $2.25 to $75.50.
* Cabletron Systems slid $1.75 to $9 and was the biggest percentage loser in the S&P; 500. The company warned of lower profits and flagging sales. The world’s No. 3 computer-networking company said it probably lost about 10 cents a share before charges in its third quarter ended Nov. 30, as it lost key customers and sold fewer of its aging products.
* Footstar fell $3.81 to $19.31 after the athletic-shoe retailer said fourth-quarter earnings will be below estimates.
Overseas, Japan’s Nikkei stock average fell 1.9%, Germany’s DAX index rose 2%, Britain’s FTSE-100 gained 1.1% and France’s CAC-40 climbed 1.8%.
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Market Roundup, C6
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INVESTOR SPOTLIGHT: C7
