Dow loses 27 as stock options expire


June 19, 1993|By Bloomberg Business News

NEW YORK -- Stocks closed broadly lower yesterday after a sell-off triggered by the quarterly expiration of stock options and stock-index options and futures sent the market reeling in the final hour.

The Dow Jones industrial average closed down 27.12, to 3,494.77. "A couple of heavy sell orders knocked the Dow down more than 20 points in the final 30 minutes of trading," said Philip Smyth, an analyst at Birinyi Associates Inc., a firm that tracks computer-driven trades.

Declining stocks on the New York Stock Exchange exceeded advancing issues by about 2-to-1. Trading was unusually active because of the expiration, with about 300 million shares changing hands. For the week, the Dow fell 10.24 points

Stocks were also depressed yesterday by declines in pharmaceutical and other health-care stocks, after negative comments about earnings trends by analysts at Kidder, Peabody & Co. and Smith Barney, Harris Upham & Co.

Led by health-care and drug stocks, the Standard & Poor's 500 Index fell 4.86, to 443.68. The Nasdaq Combined Composite Index tumbled 6.35, to 689.59.

"When you get this volatility, you have a lot of active managers stay out of the market and leave it to the passive [index fund] managers to do their own thing," said Thomas Callahan, senior vice president of U.S. equities at Yamaichi International.

Shares of medical consumer products and pharmaceutical companies slumped after an analyst at Kidder Peabody lowered his ratings on Merck, Pfizer, American Home Products, Bristol-Myers Squibb, Glaxo Holdings and Rhone-Poulenc Rorer Group. The analyst, Stephen Buell, cited increased government controls on drug prices, growing use of generic drugs and fewer tax shelters.

Health-care issues were dealt another blow when an analyst at Smith Barney, Harris Upham & Co. reduced his rating on Johnson & Johnson because of concern about sales in the company's surgical device business. Johnson & Johnson dropped $2.875, to $42.875.

"It looks like almost all of the weakness" is in the health-care group, said Michael Lenahan, head of U.S. equity trading at James Capel. "The dollar's rally hurts earnings" of multinational drug companies, he said.

Against the German mark, the dollar soared more than 2 pfennigs, to a 15-month high of 1.686 marks. Traders dumped marks in anticipation of a cut in German interest rates. Meanwhile, the yen declined after the government of Prime Minister Kiichi Miyazawa of Japan was defeated in a no-confidence vote by the Parliament after Mr. Miyazawa failed to pass a political-reform bill.

The dollar was also buoyed by news of a rebound in the University of Michigan's preliminary consumer sentiment index for June. The index rose to 82.8, from 80.3 in May. Economists had expected no change.

LTV fell 1/32, to 12.5 cents, after the Wall Street Journal's "Heard on the Street" column reported that although some analysts think the new common shares might be attractive because the company is nearly debt-free, has new equipment and low costs, others cautioned that stocks of companies emerging from bankruptcy often decline.

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