Stocks Mixed as Asia Fuels Profit Fears
U.S. stocks were mixed but mostly lower Monday amid concern that slumping economies in Asia will mean lower-than-expected U.S. corporate profits.
Computer shares declined for the 11th time in 12 days, led by Intel and Dell Computer.
The Dow Jones industrial average gained 22.42 points to 8,922.37. But the Nasdaq composite index plunged 32.05 points, or 1.8%, to 1,746.82.
Markets around the world slumped again amid concern that the economic woes in Hong Kong, Japan and Russia are worsening. Weak economies and currencies overseas mean that those countries will purchase fewer U.S. goods and export more low-priced products to North America, boding ill for U.S. companies.
“The decline in [Asian] economies has been inexorable,” said Marshall Front, managing director at Trees Front Associates in Chicago. “Clearly, we haven’t seen the total impact of the Asian crisis, particularly on our exporters.”
In Hong Kong, the Hang Seng index tumbled 3.6% on concern that government measures to boost real estate won’t be enough to head off a recession. Tokyo’s Nikkei-225 index slumped 2.2%.
The benchmark Russian Trading System index fell 8.3% as expectations waned for a debt-bailout package.
On Wall Street, investors bought utility and telephone stocks as they sought investments that might hold up well in a market made volatile by a steepening decline in Asian economies.
Utilities benefited from a drop in bond yields to four-month lows. The Dow Jones utilities average rose 2.5% to a record.
“They’re probably safer places to put your money than the technology stocks,” said Robert Streed, a portfolio manager at Northern Trust in Chicago. “Everything that’s exposed to Asia is just falling under question again.”
While computer-related companies fell from the opening bell, the large multinational stocks that make up the Dow industrials and the Standard & Poor’s composite index of 500 stocks seesawed back and forth. The Dow industrials rose as much as 81 points by midday and fell as much as 35 points in the afternoon before recovering.
Intel slumped after the world’s biggest semiconductor maker said it will delay its advanced Merced processor by six months. Dell has been falling for two weeks, since it reported that prices for its computers dropped more than expected.
“The industry is in oversupply right now and it takes a while to eat through that, and you’ve got Asian demand slowing,” said Gerard Sullivan, manager of the $190-million Franklin Value Fund. He recently bought shares of PBOC Holdings, parent of a savings and loan in California, and Household International, a consumer finance company.
Many computer and software stocks, which rose the most as the market rallied in the first quarter, now are falling as investors realize that the outlook isn’t as rosy as they thought. While Merced’s delay will cost Intel $300 million in revenue next year--a small bite for a company with $25 billion in 1997 sales--it comes as the chip maker faces slumping demand in Asia, falling PC prices and antitrust action.
Small stocks overall slumped. The Russell 2,000 index of small companies fell 1.2%.
The Asian credit crunch does hold one benefit for U.S. companies: They are finding it cheaper to invest in the region. Travelers Group, the giant U.S. brokerage, insurance and finance company, gained $1.75 to $63, leading the Dow average’s gain, after it said it will buy 25% of Nikko Securities, Japan’s third-largest brokerage, for $1.59 billion.
Minnesota Mining & Manufacturing, also a member of the Dow, rose $1.50 to $94.13. Analyst Alex Henderson at Prudential Securities said he was encouraged by 3M’s comments about its Asia business and predicted that the stock will reach 110 in 12 months.
Concern about profits dragged the S&P; 500 3.5% below its April 22 high. Still, the index is up 12.4% this year, and the slowdown in Asia has eased concerns that the Federal Reserve Board would raise interest rates to keep inflation in check.
“A few weeks ago, everybody was obsessed with higher interest rates,” said Donald Selkin, chief market strategist at Joseph Gunnar & Co., a New York brokerage. “Now the market’s concern has shifted from interest rates to earnings.”
Selkin said a bear market is unlikely unless the Fed raises rates.
Market Roundup, D14