As Dow Drops, Analysts Cite Profit Jitters
Blue-chip stocks fell for the fourth straight session and bond yields slipped Thursday as disappointing corporate earnings encouraged investors to buy fixed-income securities.
The dollar edged higher against the Japanese yen amid worries about Japan’s reform programs, but it fell against the mark on expectations that Germany will raise interest rates.
The Dow Jones industrial average ended 195.93 points lower, or 2.1%, at 8,932.98. It was the sixth-biggest point drop ever, pushing the closely watched blue-chip index back below the key psychological 9,000-point mark to its weakest close since June 24.
Broad-market indicators also suffered heavy losses, with declining issues outnumbering advancers by nearly a 4-1 margin in heavy trading on the New York Stock Exchange.
The Nasdaq composite index was down 34.53 points, or 1.75%, at 1,935.22.
The Standard & Poor’s 500-company index, a model against which many stock mutual funds are patterned or compared, fell 24.33 points to 1,139.75, down about 4% from last Friday’s closing record of 1,186.75.
In other trading, the NYSE composite index fell 12.13 points to 576.68 and the Russell 2,000 index of smaller companies lost 8.60 points to 442.33.
Analysts said the market was also rattled by the resignation of President Clinton’s press secretary, Mike McCurry.
“It’s just some earnings and some political jitters,” said Jim Benning, a trader at BT Brokerage. “Some of the earnings that came out were pretty bad.”
As stocks slumped, U.S. bond prices rose for the third time in four days after Moody’s Investors Service Inc. said it may cut Japan’s credit rating, boosting the allure of less risky securities such as Treasuries.
“A lot of the gains in bonds seem to be tied to flight to quality,” said Edgar Peters, who helps oversee about $16 billion in assets at PanAgora Asset Management.
The price of the benchmark 30-year Treasury bond rose, pushing its yield down to 5.65% from 5.69% on Wednesday.
Turmoil in Asia and Russia, combined with expectations for slowing U.S. economic growth, have bolstered demand for Treasuries in recent months, sending the 30-year yield as low as 5.56% on July 7, the lowest since the government began regular sales of the securities in 1977.
On Thursday, bonds climbed after Moody’s placed the Japanese government’s “Aaa” credit rating on yen and foreign currency-denominated debt and bank deposits on review for possible downgrade, citing “deep, structural problems in Japan’s economy that have defied conventional policy remedies.” Earlier this year Moody’s warned that ratings of several “Aaa”-rated Japanese companies, such as Toyota Motor Corp., could be reduced because of the country’s economic problems.
The dollar climbed as high as 142.08 yen, up from 141.24 on Wednesday before settling at 141.38 in New York, following the news. A stronger dollar increases the attraction of Treasuries by boosting the value of the bond’s interest and principal payments when converted into other currencies.
Bonds also got a boost as U.S. stocks fell amid concern that turmoil in Asia will crimp corporate profits. That prompted some investors to switch from stocks to Treasury bonds, traders said.
Boeing led the blue-chip slide after the aircraft giant stunned analysts with its first-ever profit warning. Boeing slumped $6.56 to $41.19.
“The basic problem is that [stock] prices are not cheap and the earnings reports have noise in them. That’s causing people to shoot first and ask questions later,” said Buzz Hussey, a market analyst at Dain Rauscher in Dallas. “The last three days have taken a lot of momentum out of the market.”
Among Thursday’s highlights:
* Few stock sectors were left unscathed by profit-taking.
Drug stocks fell the most. Pfizer, which has almost doubled in the last year, slid back $4.94 to $111.44. Merck dropped for a third day, losing $1.69 to $123.44, after warning earlier in the week that its 1998 profit would be at the low end of estimates. Schering-Plough fell $3.13 to $97.25.
* Charles Schwab tumbled $3.63 to $39.25 after Chairman Charles Schwab told employees that the biggest discount broker isn’t for sale. It rallied in the last week after a report that a new underwriting arrangement between Schwab and Credit Suisse First Boston could lead to a merger.
* Among the gainers, Computer Associates International rebounded $1.13 to $41.56 after tumbling 31% Wednesday.
Overseas, London’s FTSE-100 closed down 0.22%. In Tokyo, the Nikkei-225 closed down 0.64%.
Market Roundup, D6
* DRAMATIC DECLINES: Investors sent a strong message to Wall Street. A1
* MARKETS MERGER: The Pacific and Chicago exchanges say they will merge. D4
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Slumping Sectors
The stock groups leading the market lower over the last week represent a cross-section of the economy, including energy, retailing and health-care. Sectors falling the most in the five sessions ended Thursday:
Oil exploration: --7.5%
General retailers: --7.7%
Textile makers: --7.8%
Aerospace: --8.0%
Department stores: --8.2%
Oil field services: --8.4%
Shoes: --8.4%
Machinery: --8.9%
HMOs: --9.3%
Oil/gas drilling: --11.9%
Source: Bloomberg News
