Slumping drug stocks constrain market advance


February 03, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday as slumping drug stocks offset more positive news about the economic recovery.

The Dow Jones industrial average fell for only the second time in the past nine sessions, declining 3.51, to 3328.67. The index rebounded about 10 points in the final hour of trading from a session low of 3318.67.

The broader stock market averages received a boost from a government report that the index of leading economic indicators advanced 1.9 percent in December, the biggest gain since April 1983. Separately, the Johnson Redbook Service, a research firm, said retail sales climbed 4.6 percent in January.

"The news about the economy is relentlessly positive," said Michael Metz, investment strategist at Oppenheimer & Co.

Standard & Poor's 500 index rose 0.04, to a record 442.56, and the New York Stock Exchange Composite index increased 0.17, to 243.98. Advancing common stocks outnumbered declining issues by about 9-to-7 on the NYSE. Trading was active, with about 271 million shares changing hands on the Big Board.

The NASDAQ Combined Composite index advanced 3.35, to 705.12. The index's record is 707.16, set last Tuesday.

The advance in U.S. stocks was constrained by a big decline in drug stocks. Standard & Poor's drug index fell 36.60, or 3 percent, to 1197.55. Merck & Co. declined $1.125, to $37.75, Pfizer Inc. fell $2.875, to $63.125, Schering-Plough slumped $1.375, to $58.75, and Glaxo Holdings Plc fell $1.125, to $18.50.

Drug stocks were battered by concerns about how the Clinton administration would seek to control rising health-care costs. President Clinton is considering a plan under which the federal government and states would distribute childhood vaccines for free through public clinics and private doctors' offices. Some analysts believe that could set a precedent for direct federal intervention in drug pricing and distribution.

"Concern is growing about how Clinton intends to reduce costs in the health-care industry," said David Shulman, investment strategist at Salomon Bros.

Mr. Clinton has said repeatedly the government can't reduce its budget deficit unless medical costs were reined in. The nation's governors are urging Mr. Clinton to propose a health-care plan within his first 100 days in office.

"We fear drug stocks will fall as much as 15 percent once the reform package is proposed," said Salomon's Mariola Haggar.

She removed American Home Products Corp., Bristol-Myers Squibb Co., Eli Lilly & Co., Marion Merrell Dow Inc., Pfizer, Schering-Plough, Syntex Corp., Upjohn Co., Warner-Lambert Co. and Wellcome Plc from her "buy" list.

Merck, Glaxo Holdings, Dell Computer Corp., RJR Nabisco Holdings Corp. and Telefonos de Mexico SA were the five most actively traded issues on the U.S. Composite.

Dell Computer Corp. slumped $4, to $45, after the personal computer maker said revenue in the fiscal fourth quarter that ended Feb. 1 was below analysts' estimates. Still, Dell plans to proceed with a stock offering that was delayed pending a six-month investigation into foreign currency trading that the company said cleared it of wrongdoing. Prudential Securities cut its rating of Dell to "hold" from "buy."

Telmex's American depositary receipts declined 87.5 cents, to $52.50. The company reported that earnings rose 1.9 percent in real terms, to $2.56 billion.

Lone Star Steakhouse & Saloon Inc. rallied $3.375 to $41.75. The restaurant operator plans to accelerate the pace of store openings to 36 restaurants in 1993, up from the previously announced 24 stores.

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