Yields Higher Despite Data; Stocks Slump
Stocks pulled back Tuesday as rising bond yields and the collapse of a major drug merger provided excuses to nibble away at some of the market’s recent record-setting gains.
The Dow Jones industrial average fell 40.10 points to close at 8,370.10, extending a minor slide since last Wednesday’s record close of 8,451.06. Even with that downturn, the Dow is up nearly 6% for 1998 and up about 20% from late October’s sell-off.
Broad market indexes, several of which set new highs on Monday, also slumped as bond rates rose despite another impressive reading on inflation.
“February has been a tremendous month, and to drive forward day after day and week after week is impossible,” said Larry Wachtel, market analyst at Prudential Securities. “The fact that the pullbacks are so mild-mannered is impressive.”
Trading opened on a sour note after Monday’s late news that merger talks between British drug makers SmithKline Beecham and Glaxo Wellcome--one of several recent mega-deals that have helped restore investor confidence--had unraveled. SmithKline’s American depositary receipts fell $6.69 to close at $59.94, and Glaxo ADRs fell $7.13 to $55.31.
Bonds struggled Tuesday despite a report showing that a sizable drop in energy prices helped keep an overall measure of consumer prices unchanged in January--the first month in four years that prices haven’t increased.
The yield on the benchmark 30-year Treasury bond rose to 5.95% from Monday’s 5.90%.
“The market isn’t going to respond each time we see [another] good inflation number. It’s nice to see, but I don’t know that it’s a turn-on,” Wachtel said.
A flood of cheap imports from the struggling Asian economy is expected to hold down prices and thus deter the Federal Reserve Board from raising interest rates to protect against inflation.
In a semiannual report to Congress, Fed Chairman Alan Greenspan hailed the performance of the U.S. economy and indicated that the Fed will leave rates alone and see how developments unfold in Asia.
Investors may have been discouraged, however, that Greenspan gave no hint of a possible cut in the central bank’s lending rates to counter the drag of the economic trouble overseas, Wachtel said.
Declining issues outnumbered advancers by a 3-2 margin on the New York Stock Exchange, where volume totaled 594.60 million shares, up from Monday’s modest pace.
The Standard & Poor’s 500-stock index fell 7.58 points to close at 1,030.56, and the NYSE composite index fell 3.59 points to 534.82. Both measures had closed at record highs Monday.
The Nasdaq composite index, which on Monday set a new high for the first time since before the Asia-induced sell-off in October, fell 13.05 points to 1,738.71.
The Russell 2,000 index of smaller companies fell 1.98 points to 454.31, and the American Stock Exchange composite index fell 1.58 points to 687.50.
Among Tuesday’s highlights:
* Motorola fell $2.88 to $57.63 following a published report that the electronics company is struggling to fix defects in its software and cellular network equipment that have already cost it a $500-million order.
* Several drug companies were lower as the collapse of the SmithKline-Glaxo merger removed some speculative froth from the sector, analysts said. Pfizer was off $1.88 at $87.50 and Merck & Co. shed $2.69 to $127.94.
* Shares of four major drug wholesalers involved in merger deals dropped sharply as fears mounted that the Federal Trade Commission will challenge the mergers on antitrust grounds. Bergen Brunswig, the nation’s second-largest drug distributor, saw its stock price drop the most: $7.13 a share, to $45. Cardinal Health, the nation’s third-largest, fell $6.19 to $79.81. Industry leader McKesson dropped $2.75 to $53.19, and Ameri- Source Health, the industry’s fourth-largest, fell $3.19 to $60.19.
* J.P. Morgan rose $3.69 to $116 after the firm said it was planning to cut jobs and raised the possibility of merging with another brokerage house.
Market Roundup, D10
