Market slides further, but Dow regains 2.70 nTC

WALL STREET

February 18, 1993|By Bloomberg Business News

NEW YORK -- Stocks finished mixed yesterday as investors focused on the prospect of spending cuts in President Clinton's State of the Union address last night.

Hopes that Mr. Clinton would stress reduced government spending, in addition to tax increases, helped inspire a late upswing in stocks and bonds.

The Dow Jones industrial average rose 2.70, to 3,312.19, recouping a small fraction of Tuesday's plunge of 82.94 points. But the broader market fell, with the Standard & Poor's 500 index losing 0.61, to 433.30. The NASDAQ Composite index of smaller stocks continued to slide, dropping 5.95, to 659.44, after having tumbled 25.15 points Tuesday.

Investors hoped that the president would outline his plans to cut spending to reduce the $290 billion federal budget deficit. On Tuesday, the Dow suffered its biggest one-day slump in 15 months after Mr. Clinton spoke Monday night about the need for higher taxes on the middle class to close the budget gap. The concern was that higher taxes would slow economic growth and weaken corporate profits.

"The issue will be how aggressive he is on the spending cuts," said John Blair, head equity trader at NatWest Securities. "If he's not as aggressive as he was on the taxes, I think it will be received very poorly."

Declining common stocks outnumbered advancing issues on the New York Stock Exchange by about 5-to-3. Trading waned from Tuesday's hectic session: More than 290 million shares changed hands, down from 325 million.

Among other indexes, the Dow Jones Transportation Average dropped 16.92, to 1,498.56, after having tumbled 63.46 points Tuesday. The American Stock Exchange Market Value index fell 4.45, to 401.36, after a drop of 9.66 points Tuesday.

"We're waiting to see the degree to which Clinton plans to raise taxes," said Michael Lenahan, head of U.S. equity trading at James Capel. "A big tax hike would be devastating to the economic recovery."

Investors had dumped stocks Tuesday in reaction after Mr. Clinton indicated that middle-class Americans would also pay higher taxes under his economic plan.

Mr. Clinton said his economic plan would impose the greatest tax increase on wealthy Americans. He is expected to propose boosting the top individual and corporate income tax rates to 36 percent. The top rates are now 31 percent on individuals and 34 percent on corporations.

"The way the program is articulated, it would definitely slow the rate of business expansion," said Michael Metz, chief investment strategist at Oppenheimer & Co. "Wall Street would have to ratchet down its expectations of profitability for the year."

Stocks also absorbed a dose of sour economic news yesterday. Housing starts plunged 7.2 percent in January, in contrast to expectations of a 0.1 percent increase.

"If there's not really any definable teeth in his programs, the market's going to be in trouble," said NatWest's Mr. Blair. "On the other hand, if he does bite the bullet and take the case to the people, I think it will be very well-received.

Health care and some pharmaceutical stocks continued to weaken yesterday amid worries about possible tax changes and price controls.

Shares of airline, railroad and trucking companies pulled back further on expectations that Mr. Clinton will propose a broad-based energy tax that will boost fuel costs.

Merck fell 50 cents, to $37.375, and Pfizer dropped 87.5 cents, to $59.25.

U.S. Healthcare, which fell $2.625 Tuesday, lost an additional $1, to $44.75. United Healthcare lost $2.625, to $48.875.

Intel gained $2.625, to $108.50. The semiconductor maker reached agreements with Ameritech and Bell Atlantic to explore such applications as audio, data and video conferencing for personal computer users.

Motorola rose $1.75, to $54.375; a Merrill Lynch analyst raised his rating to "above average," from "neutral," saying that sales of portable phones do not appear to have been hurt by a lawsuit that contends that cellular phone usage can raise one's risk of brain cancer.

Kimberly-Clark slumped $2, to $55.125, after the maker of paper and forest products told analysts that its marketing costs would rise as it expands its presence in the European diaper market. The company said first-quarter earnings might not reach the level of a year ago. An analyst at Donaldson, Lufkin & Jenrette cut his rating to "neutral."

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