Stocks mixed amid worries on profits Dow falls 1.35

WALL STREET

January 06, 1993|By Bloomberg Business News

NEW YORK -- The New Year's rally keeps getting delayed Concerns about corporate earnings caused the market to falter yesterday in the second session of 1993 as growth stocks, especially those in tobacco and drugs, tumbled.

"The market is having trouble in the first few days of 1993" as investors worry about high market valuations and the outlook for corporate profits, said Barry Berman, head trader at Robert W. Baird.

The Dow Jones industrial average slipped 1.35, to 3,307.87, with Philip Morris, IBM and Coca-Cola leading the decline. The S&P 500 dropped 1.04, to 434.34. Defying the trend, the NASDAQ Composite of smaller stocks rose 2.54, to 674.34.

Advancing stocks outnumbered declining issues on the New York Stock Exchange by a margin of about 9-to-7. Trading was brisk, with 240 million shares changing hands. The American Stock Exchange Market Value index dipped 0.04, to 397.31.

"The multiples are too high, and the yields are too low, and that spread just keeps getting wider," said Kenneth Ducey, director of trading at BT Brokerage. The Standard & Poor's 500 index is trading at 15.2 times the S&P's 1993 earnings estimate of $28.79. The index's dividend yield is a meager 2.9 percent.

"There's good volume, yet the market's not really going anywhere," Mr. Ducey said. As investors await the new administration, "what they're going to concentrate on is corporate earnings. If the earnings keep growing, the market's going to be OK."

Shares of tobacco, drug, health care and beverage companies slid the most among the S&P 500 groups. These groups, traditionally favored for steady earnings increases, have been battered by signs that profit growth is slowing.

Philip Morris dropped $2.875, to $73.50, amid concerns that New York state will double its cigarette tax and reports that a coalition of health groups is urging President-elect Bill Clinton to raise cigarette taxes. Also, an analyst at Sanford C. Bernstein said sales of Philip Morris' flagship cigarette, Marlboro, continue to decline as smokers buy cheaper brands. The analyst repeated a "hold" on Philip Morris.

RJR Nabisco Holdings dipped 25 cents, to $8.375.

Drug stocks were hammered by the prospect of smaller price increases under the Clinton administration and worries that a strong dollar will hurt earnings overseas. Merck fell 75 cents, to $43.125, and Pfizer dropped $2.50, to $69.875.

Brokerage stocks fell as investors fear that 1993 earnings will not match the record levels of 1992. Merrill Lynch fell $1.25, to $57.75, and PaineWebber lost 50 cents, to $23.125.

IBM fell $1.25, to $48.875, on concerns that the rising dollar may crimp profits overseas. The stock has been hovering near 17-year lows since IBM announced a fourth-quarter charge of $6 billion to cut about 25,000 more jobs this year.

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