Dow drops 14 amid concern about slower recovery

WALL STREET

August 13, 1993|By Bloomberg Business News

U.S. stocks, after setting records in two of the past three days, fell yesterday amid new concern about the economic recovery.

That concern stems from government reports showing producer prices fell last month and retail sales barely rose.

"We have a weak economy and a slower recovery than people are anticipating," said George Wild, fund manager at Merchants Capital Management Inc. in Indianapolis.

The Dow Jones industrial average declined 14.26 points to 3,569.09, but had been down about 31 points until a late burst of computer-driven buy orders gave the average a boost.

The Standard & Poor's 500 Index slid 1.50 points to 448.96, led by declines in beverage, drug and electrical equipment issues. The Nasdaq Combined Composite Index fell 1.65 from an all-time high to 717.12. The American Stock Exchange Market Value Index lost 1.29 to 437.58. Declining common stocks led advancing issues by about 3 to 2 on the New York Stock Exchange.

Trading on the Big Board was active, as 278.5 million shares changed hands.

The market's weakness was tied to a growing realization that economic growth isn't strong enough to justify analysts' earnings forecasts, Mr. Wild said.

"Earnings estimates for 1994, especially for basic industry companies, are a little high," he said.

Basic industry stocks, such as Caterpillar Inc., led yesterday's // retreat, he said. Caterpillar slumped $1 to $81.375 after the company announced plans to partly shut a tractor plant in East Peoria, Ill., because of weak demand.

"The economy appears to be so sluggish that wholesalers can't pass along price increases to the consumer," said Thomas Heck, senior vice president in equity trading at Mabon Securities Inc.

This view was prompted by the Labor Department's report that producer prices fell 0.2 percent last month, the first time in two years that the producer price index decreased over a two-month period.

The decline in producer prices means inflation is under control and interest rates should stay low, Mr. Heck said, but it also raises questions about the strength of the economy. "The probability of economic weakness is what investors focused on today," he said.

"We've gone from inflation fears to deflation fears," said Philip Smyth, a market analyst at Birinyi Associates Inc.

"Inflation is so low, the fear is it's going to affect prices negatively," curbing economic growth and corporate profits.

Auto stocks were among the worst-performing industry groups today. General Motors Corp. declined 50 cents, to $47.50, Ford Motor Co. fell 37.5 cents, to $52.375, and Chrysler Corp. lost 25 cents, to $43.

Some saw the declines as good news.

"It's very positive that the market backed off because it means the market is curbing its excesses and conserving its energy for a continued rally over the longer term," said Eugene Peroni, market analyst at Janney Montgomery Scott Inc. in Philadelphia.

"Kodak is a case in point of a stock that has been extremely strong lately, and investors are using that strength to take profits," Mr. Peroni said.

Kodak's stock soared 10.6 percent in the past week after the board ousted Kay H. Whitmore as chairman and chief executive, paving the way for extensive restructuring steps. Yesterday, the stock fell $1.125 to $60.125.

Equity Residential Properties Trust, Telefonos de Mexico S.A., U.S. Healthcare Inc., Intel Corp. and Newmont Mining Corp. were the five most actively traded issues on the U.S. Composite.

Telmex slumped $1.50, to $49.875, after Canada rejected a compromise on the use of trade sanctions to settle labor and environmental disputes under the North American Free Trade Accord.

T2 Medical Inc. plunged $5.375, to $8.25. The provider of in-home medical care said it overstated first- and second-quarter earnings because of errors and irregularities in its records of unpaid accounts. The company also said President and Chief Executive Joseph Allegra resigned.

Shares of health maintenance organizations rebounded from yesterday's decline after the White House denied a newsletter report that HMOs and health insurers may be made responsible for extra costs under the Clinton administration's health care plan. U.S. Healthcare rose $4.25, to $45.50, Foundation Health Corp. gained 50 cents, to $19.125, and United Healthcare Corp. advanced $3.875, to $56.625.

Land's End Inc. advanced $2.375, to $32.125. The mail-order retailer said second-quarter earnings rose to 20 cents a share from 14 cents in the prior year. The results exceeded analysts' estimates of 17 cents, according to Zacks Investment Research.

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