Airlines' 'blood bath' slows stock rally

WALL STREET

June 18, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday as weak transportation, technology and retail issues offset a late burst of computer-driven buy orders in blue chips.

Sluggish overseas markets failed to give a favorable lead for investors as Germany's Bundesbank kept interest rates unchanged.

The late rally in blue chips was tied to today's quarterly options and futures expiration, as institutional investors reinvested cash from expiring contracts in underlying stocks.

That move briefly carried the Dow Jones industrial average to a session high of 3,524.94 before petering out. The Dow ended 10.24 higher at 3,521.89, its second straight rise.

"The real feature today [was] the blood bath in the airlines," following a warning about smaller second-quarter earnings from American Airlines' parent AMR Corp., said Michael Metz, chief market strategist at Oppenheimer & Co.

AMR drove "another nail in the coffin" for investors who focus on rising corporate profits, Mr. Metz said. Such investors "are going have great difficulty finding vehicles here," and will have second thoughts about paying high prices for "a lot of wonderful things that may or may not happen" in 1994.

"The business background is not creating any sense of urgency" for investors to keep flooding into the stock market, Mr. Metz said.

In the broad market, the Standard & Poor's 500-Stock Index was 1.11 point higher at 448.54, while the Nasdaq Combined Composite Index was down 0.31 at 695.94.

The benchmark 30-year Treasury bond hardly budged yesterday light trading, ending 2/32 higher at 104 1/32 to yield 6.80 percent.

Stocks are "still bumping up against the top of the trading range," said Mr. Metz, who expects prices to slide later this summer.

The prospect of President Clinton's news conference last night left some investors reluctant to participate in yesterday's trading, said James Andrews, first vice president in charge of institutional trading at Janney Montgomery Scott in Philadelphia.

"There's nothing wrong with the market," Mr. Andrews said. Interest "rates are good and are not going higher."

"Everything is set up to start a nice summer rally" as investors look past flat second-quarter earnings and anticipate higher profits in the quarter than ends in September, he said.

Yesterday, concern about corporate earnings, sparked by AMR's profit warning one day after USAir Group made a similar gloomy forecast, countered optimism about lower bond yields.

Volume on the New York Stock Exchange was moderate at 240 million shares. Declining issues barely outpaced advancing ones.

AMR opened down $4.50 at $61.50 after warning that second-quarter earnings would fall below analysts' expectations, and closed down $4.25 at $61.50. Delta Air Lines fell $1.75, to $48.125, while UAL Corp. fell $5.50, to $121.50.

British Airways' American Depositary Receipts bucked the downward trend, rising 87.5 cents, to $45.125,as S. G. Warburg Securities raised its investment opinion to "add" from "hold."

Weak technology stocks hurt investor sentiment throughout the session amid a recent spate of profit warnings and concern about future earnings growth. Intel dropped 37.5 cents, to $56.125, and Hewlett-Packard fell for a second day, down $2.625, to $81.

Zilog Inc., a semiconductor maker, told analysts and investors that its second-quarter revenue will fall slightly below expectations, driving its shares down $4 to $26.

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