Stocks Decline Broadly; Dow Drops 155
Stocks ran into a broad, sharp decline Wednesday, confirming why many Wall Streeters maintain a cautious stance in spite of the market’s record-setting rally a day earlier.
The Dow Jones average of 30 industrials--dragged lower by a sell-off of Procter & Gamble--dropped 155.76 points, or 2%, to 7,865.02, after surging 380.53 points Tuesday for its largest daily point gain in history.
The U.S. dollar, meanwhile, soared against the Japanese yen after Japan cut interest rates in a bid to help its battered economy. The dollar hit a new high against the Mexican peso, but fell against most other major currencies, including the German mark.
And government bond prices rallied. Prices of the bellwether 30-year Treasury bond climbed more than 1.25 points, or nearly $13 for every $1,000 in face value, pushing its yield down to 5.27% from 5.35% late Tuesday.
The seesaw movement in stocks follows a massive slide over the last few weeks. The decline was blamed on the market being priced too high--it reached historic peaks in mid-July--at a time when economic turmoil in Asia, Russia and Latin America was paring U.S. corporate profit growth.
Hints from Federal Reserve Board Chairman Alan Greenspan that the central bank might nudge interest rates lower in response to the international woes was the catalyst that sent the market soaring Tuesday.
Even so, many analysts took a subdued posture and asserted that the market was by no means ready to shed those concerns and embark on a sustained rally. They noted that the overseas problems remain in place and that investors’ confidence--battered by the pummeling of recent weeks--will need more time to improve.
Also, many traders took advantage of the market’s surge Tuesday to sell at least some positions at a profit--creating a lid on the market’s ability to climb further, analysts said.
“The fundamental background for stocks didn’t change overnight,” said Rao Chalasani, chief investment strategist for Everen Securities Inc. in Chicago. “It’s going to take time to sort things out.”
Stocks also were dragged lower by computer-guided selling, according to Birinyi Associates Inc., a Greenwich, Conn., research firm.
More than two stocks fell for each one that rose on the New York Stock Exchange, and most broad measures of the market joined the Dow Jones industrials in losing between 1.5% to 2% of their value.
Big Board volume was an active 704.4 million shares, though that was down from the 815 million that changed hands during Tuesday’s rally.
Banks and other financial services stocks, including Citicorp and American Express, again were hit with heavy selling. Brokerage stocks such as Merrill Lynch also tumbled in the face of the stock market’s latest pullback.
Some analysts said the market probably has hit its low range for the year, but that price movements will remain volatile.
“The market has made a bottom,” which would be expressed as the 7,500-to-8,000 range for the Dow Jones industrial average, said Richard McCabe, chief market analyst at Merrill Lynch & Co. “And I don’t think today’s setback negates that.” But he warned of “a choppy, ragged” market ahead.
Owing in large part to the foreign economic problems, corporate profit growth for the third quarter ending Sept. 30 is expected to show a widespread slowdown from recent growth rates. But with the market having dropped so far--the Standard & Poor’s 500 index is still off 15% from its record high set July 17--the impact should be muted, some analysts said.
Widespread decline in global markets gave little support to U.S. stocks as they opened trading Wednesday. Blue-chip indexes in Tokyo and Hong Kong fell 1% and 3.5%, respectively, and lost 1% in London and 2.7% in Frankfurt. The Mexican and Brazilian markets dropped 2.2% and 2.8%, respectively.
Asian markets were mixed in early trading today, with Japan’s main index up 0.5%, and Singapore’s and Malaysia’s down about 2%.
Among Wednesday’s U.S. market highlights:
* Procter & Gamble plunged $7.63 to $72 in heavy trading after the consumer products giant named a new chief executive and unveiled another reorganization to revive its lagging earnings and sales growth.
* Amazon.com skidded $7.75, to $84.50, amid concern that the online bookseller faces increased competition and thinner profit margins.
* Losing bank stocks included Chase Manhattan, down $2.50 to $44.63; Citicorp, off $5.63 at $93.06; and BankAmerica, down $4 to $59.38.
In late New York trading, the dollar rose to 137 Japanese yen from 132.10 late Tuesday, and it hit a record 10.32 Mexican pesos, up from 10.24.
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Market Roundup, D8
