U.S., Foreign Stocks Fall as Fears Mount
Stocks fell sharply in U.S. and global markets Thursday as mounting worries over foreign economic turmoil regained center stage. The Dow Jones industrial average tumbled more than 200 points to give back nearly half the 6% gain it earned over the previous four sessions, and Japan’s benchmark index hit a 12-year low.
The global flight from stocks also sent the yield on long-term U.S. government bonds--a traditional haven in times of investor skittishness--to a record low 5.18%. The U.S. dollar, meanwhile, fell against most other major currencies.
The sell-off of stocks in Asia and Europe, which then spilled into U.S. trading, was blamed in large part on traders’ disappointment with remarks by Federal Reserve Board Chairman Alan Greenspan. The central bank chief on Wednesday ruled out an immediate coordinated cut in interest rates by the major industrial powers to bolster the world economy.
Fresh earnings problems at some major firms--including a surprise profit warning from French telecommunications giant Alcatel that sent its stock plunging--also fed investors’ desire to resume their heavy selling of stocks.
The Dow 30 industrials tumbled 216.01 points, or 2.7%, to 7,873.77, after having climbed 474.24 points in four straight winning sessions. Exactly two months after peaking at 9,337.97 on July 17, the Dow is back below this year’s break-even point, 7,908.25, and about 1,464 points, or 15.7%, from record terrain.
Broader market measures, such as the Standard & Poor’s 500 and the Nasdaq composite index, also posted losses of 2.5% to 2.7% on Thursday. Overall, nearly three stocks fell for each one that rose on the New York Stock Exchange.
But the damage was much worse in Europe. As measured by their blue-chip indicators, markets plummeted 5.5% in Paris, 5% in Frankfurt and 3% in London.
In Tokyo, the Nikkei 225-stock index dropped an additional 2.4% to 13,859.14 as property stocks that ballooned during the late 1980s fell on concern that local governments in Tokyo and Yokohama may be forced to sell property.
On Wall Street, stocks of major banks and consumer-products makers with overseas exposure were especially hard-hit. Gillette, for instance, plunged $3.31 further, to $36.88 a share, after saying Wednesday that its third-quarter revenue will trail expectations.
Hopes for cuts in interest rates surfaced Monday when President Clinton called for a multinational strategy to contain the economic crises in Asia and Russia and prevent a global recession. The anticipation was further heightened that day when finance ministers and central bank presidents from the world’s seven richest countries issued a joint statement saying they needed to work together to deal with the problem.
But Greenspan, although not ruling out such an effort eventually, dampened hopes that the U.S. central bank would immediately lead the way by lowering its own lending rates. That left investors to stare again at the economic troubles in Asia, Latin America and Russia--all of which are taking a toll on the growth of corporate earnings.
“The environment outside the U.S. is still very precarious,” said Ned Riley, chief investment officer at BankBoston Corp. “The pressure on corporate profits in this country continues to mount.”
But not just in this country. Alcatel, a leading phone-equipment maker, said Asia’s troubles and other factors mean its profit won’t meet forecasts this year. The announcement stunned investors, and Alcatel’s American depositary receipts plunged $12.06, or 39%, to $19.25 per ADR on the Big Board.
Part of the selling also was attributed to traders unwinding positions in advance of today’s “triple-witching” session, when stock and stock-index options and futures will expire--a day that can mean volatile trading of the instruments’ underlying stocks.
Elsewhere in the battered consumer sector, Procter & Gamble lost $3.19 to $66.81. Also down were Revlon, $2.06 to $31.94; Colgate-Palmolive, $4 to $68.50; and Clorox, $5.06 to $82.19.
Selling also hit financial stocks such as Chase Manhattan, down $2.06 to $47.88; Citicorp, down $6.50 to $96.25, and J.P. Morgan, off $5.75 at $89.50.
Among other highlights:
* Alcatel’s woes spread to other telecom stocks. Nokia ADRs fell $5.81 to $75.50, Lucent Technologies lost $4.25 to $72.13, and Northern Telecom tumbled $6 to $39.56. But Ascend Communications bucked the trend, rising $2.63 to $47.56.
* Gulfstream Aerospace soared $4.06 to $36 on upbeat earnings forecasts for this year and 1999.
* J.B. Hunt Transportation plunged $5.88 to $16.50--or 26%--after the freight-trucking concern said its third-quarter results would come up short of expectations.
In the credit markets, the drop in the 30-year Treasury bond’s yield--from 5.22% late Wednesday--came as the bond’s price rose by more than one-half point, or $6.50 for every $1,000 in face value. Its yield now stands at its lowest level since the government began selling the bonds in 1977.
In late New York currency trading, the dollar fell to 132.18 Japanese yen from 134.90 yen late Wednesday, and it dropped to 1.6895 German marks from 1.6902 marks. Gold, meanwhile, rose to $291.00 per troy ounce from $287.70 on the New York Mercantile Exchange.
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Market Roundup, D6
