Stocks Sink on IBM’s Loss; Dollar Declines Sharply
U.S. stocks closed broadly but modestly lower on Wednesday, although blue chips were hit harder on disappointment over IBM’s quarterly earnings report.
Meanwhile, the dollar fell sharply against the German mark and Japanese yen as traders began to focus on the prospect for slower U.S. growth this year.
On Wall Street the Dow Jones industrial average sank 78.72 points, or 1%, to 7,794.40, although it pulled up from its session low of 7,737. The Dow had risen 119 points on Tuesday, its fifth advance in six sessions.
Some analysts said the market’s losses were compounded by reports in The Times and in the Washington Post that President Bill Clinton had an affair with a former intern and then told her to lie about it. The White House denied the allegations.
A midday report on CNBC-TV about the allegations coincided with the Dow’s drop of more than 100 points, said Mace Blicksilver, managing director of U.S. equities trading at Credit Lyonnais Securities in New York.
Still, the Dow’s trend Wednesday was heavily influenced by component stock IBM, which plunged $8.25 to $100.13, or 7.6%, as investors reacted to the company’s weak fourth-quarter earnings report released Tuesday after markets closed.
IBM said the Asian currency crisis had eroded its profit and could hurt future results.
“The IBM story is the market in a microcosm--we are still very worried about Asia,” said Courtney Smith, chief investment officer for Orbitex Management. “We are going to have to get through the earnings season before we can really turn around.”
But the broad market Wednesday was stronger than the Dow index. The Standard & Poor’s 500 index lost 0.8% to 970.81, while the tech-heavy Nasdaq composite index was off just 0.1% to 1,587.92.
Even so, losers outnumbered winners by 18 to 11 on the New York Stock Exchange and by 24 to 18 on Nasdaq.
NYSE volume totaled 626.2 million shares, the 11th time in 13 sessions that more than 600 million shares have changed hands.
Some companies reporting quarterly earnings on Wednesday posted robust results. Caterpillar, for example, gained $1.88 to $46.88 after the company said earnings rose 18%.
Nonetheless, “Investors must be prepared for more short-term earnings disappointments,” said Ed Haldeman, a partner at Cooke & Bieler in Philadelphia, which oversees about $6 billion. U.S. companies will be hurt as Asia buys fewer U.S. products and as weaker currencies make Asian exports more competitive overseas, he said.
But it was the dollar that weakened on Wednesday, at least against major currencies. The dollar suffered its worst decline in six weeks against the German mark on news that Western German business confidence last month unexpectedly rose, fueling speculation German interest rates could head higher before long if that economy grows faster than the U.S. economy this year.
Japanese Prime Minister Ryutaro Hashimoto helped push the dollar down for a seventh day against the yen after signaling he may diverge from plans to reduce the budget deficit, saying Japan’s government must be prepared to bolster the economy.
Also, there were new reports that Eisuke Sakakibara, an influential official at the Ministry of Finance, said Japan was considering selling dollars for yen in the currency markets to strengthen the yen.
The dollar closed at 1.819 marks, down from 1.840 on Tuesday; the dollar also fell to 127.15 yen from 128.40.
The dollar’s losses didn’t hurt the bond market, however. Yields ended modestly lower, with the 30-year Treasury bond finishing at 5.81% versus 5.84% on Tuesday. It was the first decline in bond yields since Jan. 12.
Among Wednesday’s highlights:
* The renewed worries about Asia weighed heavily on financial shares, the other group considered particularly vulnerable to the crisis. J.P. Morgan, which on Tuesday reported weaker-than-expected profit, fell $3.88 to $101.38 as the Dow’s second-biggest decliner after IBM.
Among other financial issues, Citicorp fell $2 to $117, Chase Manhattan fell $2.06 to $105.13 and Merrill Lynch eased 25 cents to $64.75.
Also, Wells Fargo slid $14.06 to $315.69 after rising Tuesday on its earnings report.
* Drug shares retreated after rallying Tuesday, as euphoria cooled over a possible merger of SmithKline Beecham and American Home Products.
SmithKline Beecham fell $2.44 to $57.13 and American Home lost $3.69 to $90.56 after jumping $13.56 Tuesday. Pfizer fell $1.81 to $79 and Merck lost $1.50 to $114.
* Despite IBM’s woes, there were some tech winners. Compaq rose $2.44 to $32.19 and Qualcomm surged $6.63 to $54.13. Also, Texas Instruments gained $1.75 to $48 despite posting disappointing fourth-quarter results.
* Oil stocks sank again as oil prices continued to weaken. Mobil fell $1.13 to $69.38, Chevron lost 94 cents to $77 and Texaco was off $1.19 to $54.
In foreign trading most world stock markets were lower, with South Korea leading the decline, down 5%. The Mexican market lost 1.6%.
But Japanese shares continued to advance. The Nikkei-225 index jumped 1.9% to 16,684, for its sixth straight gain.
Market Roundup, D8
