Stocks Slip on Oil Issues and Earnings Jitters
U.S. stocks fell for a second day in a row, led by oil stocks that declined as crude prices dropped to four-year lows, and by unexpectedly weak profits and gloomy forecasts from several companies.
The Dow Jones industrial average dropped 63.52 points, or 0.8%, to 7,730.88. The Standard & Poor’s 500 index slid 7.77 points, or 0.8%, to 963.04, and the Nasdaq composite index dropped 11.41 points, or 0.7%, to 1,576.51.
Slumping Asian markets set the stage for the decline in U.S. shares. Indonesian stocks suffered their biggest drop in two weeks on Thursday, sending the Jakarta Stock Exchange Composite Index down 4.8%. Diminishing confidence in Indonesia’s ability to avoid a wave of corporate bankruptcies led to a plunge in the rupiah against the dollar.
The rupiah fell another 5% Thursday. Meanwhile, key stock indexes fell in Tokyo, Hong Kong, Singapore, Malaysia, South Korea and Thailand. Currencies in most of these countries also fell in value against the dollar. European markets followed, with key indexes in London, Frankfurt and Paris losing ground.
The panic selling in Indonesia came amid signs that Indonesians had begun to question the soundness of the country’s banking system--despite a $43-billion loan from the International Monetary Fund and a series of economic reforms.
However, Tokyo stocks rose this morning on hope that government stimulus measures such as tax cuts would jump-start the sluggish Japanese economy. The 225-issue Nikkei index rose 1.04%.
U.S. stocks slumped in part on concern that earnings growth may be starting to slow. About 187 companies in the S&P; 500 have reported earnings for the quarter ended Dec. 31. Of them, 48% topped expectations, 29% fell short of estimates and the rest were in line. At this point last quarter, about 55% of the companies had exceeded forecasts and 25% were below.
“Any company that reports disappointing earnings is getting killed,” said Chip Otness, a money manager at J.P. Morgan Investment Management in New York, which oversees $275 billion. Multinational companies are being hurt as the dollar’s strength makes their products more expensive overseas, and investors are still trying to gauge the effect of Southeast Asia’s slowdown on the U.S. economy, he said.
Oil companies such as Exxon, down $1.50 to $59.19, and the companies that perform their engineering work led the decline in the S&P; 500, as crude prices fell to $16.04 a barrel on the New York Mercantile Exchange. Crude is 29% below its October level because a mild U.S. winter and slumping Asian economies has cut consumption.
Oil service companies tumbled as much as 12% on concern that exploration and production companies will reduce spending to protect profits.
The drop gained momentum when Schlumberger, one of the oil industry’s biggest engineering and technology companies, reported disappointing earnings and said its customers may cut spending because of weaker demand in Asia. Schlumberger tumbled $9.88 to $71.31, Smith International lost $7.38 to $49.38 and Cooper Cameron dropped $5.81 to $51.56.
“Schlumberger missed its quarter, and it’s got everyone scared about an already weak sector of the market,” said Brian Finnerty, co-head of capital markets at Unterberg Harris in New York.
Low oil prices have sent the S&P; Oil Well Equipment & Services Index down 14% so far this year. Oil service stocks were among the best-performing in 1997, when the index gained 55% for the year.
Among Thursday’s U.S. market highlights:
* Tobacco shares fell on concern that industry documents released in a Minnesota trial may jeopardize a proposed national settlement. Philip Morris fell $2.38 to $41.88 and RJR Nabisco Holdings slipped $1 to $33.81.
* Among techs, Sybase fell $1.92 to $7.77, making it the biggest loser among the 100 biggest Nasdaq stocks, after the database-software company said it will report a large fourth-quarter loss and will restate revenue for the first three quarters of 1997 after learning that its Japanese unit improperly recognized as much as $65 million in sales. Altera lost $3.63 to $30.94 after reporting unexpectedly low earnings as sales of its specialty computer chips slumped in Asia.
Microsoft rose $1.63 to $138.63 after the software maker settled a contempt charge with the Justice Department.
* Sears Roebuck fell 88 cents to $45.06 after warning that profit will fall substantially in the first quarter. The retailer said first-quarter earnings will suffer because more customers are falling behind on their credit-card payments.
* Newhall Land & Farming dropped $1.31 to $28.69 after the real estate development company said first-quarter earnings are “expected to be minimal.”
* Planet Hollywood fell $3.31 to $7.13, after the movie-theme restaurant chain said fourth-quarter and 1998 earnings will be far below expectations because sales slumped.
* United Technologies jumped $3 to $74.63 after the aerospace and automotive parts maker’s earnings exceeded estimates.
The yield of the benchmark 30-year Treasury bond rose to 5.87% from 5.81% late Wednesday as reports on the housing market suggested the economy is still robust.
The dollar rose against the Japanese yen amid increased scrutiny about economic troubles in Japan and throughout Asia. The dollar ended Thursday at 127.23 yen, up from 127.15 Wednesday.
Market Roundup, D7
