Slow economy and earnings send stocks into tailspin

WALL STREET

September 08, 1993|By Bloomberg Business News The New York Times News Service contributed to this article.

NEW YORK -- U.S. stocks plummeted yesterday as concern about the sluggish economy and corporate earnings outweighed record-low long-term interest rates, traders and investors said.

"If real slow growth and low inflation continue, we are being set up for a constant stream of earnings disappointments," said David Shulman, equity strategist at Salomon Brothers.

Investors also responded to remarks by Federal Reserve Chairman Alan Greenspan that weak growth among U.S. trading partners would curb exports, and that short-term interest rates eventually must rise.

Amid computer-guided sell orders, the Dow Jones industrial average dropped 26.83 points to 3,607.10, led by declines in economically sensitive stocks like Chevron Corp. and Aluminum Co. of America.

Declining common stocks outpaced advancers almost 11 to 6 on the New York Stock Exchange, where volume totaled an active 229.5 million shares.

The Standard & Poor's 500 Index slid 2.82 to 458.52, led by sliding oil, drug and gold issues. Gold stocks shadowed a drop of $14.60 an ounce in the price of gold for delivery in December as investors bet that growth and inflation would not pick up.

The Nasdaq Combined Composite Index tumbled 10.36 to 739.35, led by technology stocks such as Cisco Systems Inc. and Oracle Systems Corp. The American Stock Exchange Market Value Index fell 5.29 to 456.28.

"The economy's not responding" to lower rates, which ought to boost consumer demand and job growth, said Donald Smith, president of Donald Smith & Co. in Paramus, N.J., with $500 million in assets.

Peter DaPuzzo, senior managing director at Cantor Fitzgerald, said, "stocks have been riding a tide of lower bond yields," but now there's a growing "realization that the negative economic numbers are quite serious."

The weak economy, low inflation, and plunging precious metals and oil prices drove yields on the 30-year Treasury bond to a record low 5.86 percent as the market gained for the ninth time in 10 sessions.

"With 2 percent inflation, bond yields at 6 percent still look pretty high," said Tony Riley, research director at A. Gary Shilling & Co., a New Jersey-based economic consulting firm.

Bond yields haven't been this low since the mid-1960s, when the Treasury sold 30-year issues sporadically. Regular bond sales began in 1977.

The benchmark 30-year bond rallied 22/32, or $6.88 per $1,000, to close at 104 28/32. The closing yield was 5.9 percent, down from Friday's record of 5.93 percent. The 10-year Treasury note traded at 5.26 percent, the lowest since July 1967. The five-year note hit 4.63 percent, the lowest since November 1965.

The "spottiness" of the recovery prompted Merrill Lynch & Co. to lower its estimate yesterday of this year's earnings per share for the S&P 500 companies to $24 a share from its earlier forecast of $25.50. Friday's unexpectedly weak employment report also led Merrill economist Donald Straszheim to lower his third-quarter economic forecast to 3 percent from 3.6 percent.

Sluggish economic growth contributed to rising concern about whether the economy is strong enough to deliver higher corporate profits that would justify the stock market's summer rally.

Such concern showed up especially in over-the-counter stocks, which some traders and analysts said generally perform poorly in September and October. "These are without exception, in the long run, earnings-driven stocks," said Roger McNamee, money manager at Integral Capital Partners in Palo Alto, Calif.

Gold stocks collapsed amid concern about the strength of the economy and a fall in the inflation rate, triggering a decline in shares of leading mining companies.

Placer Dome Inc. dropped $1.875 to $18.25, Homestake Mining Co. fell $2.125 to $16.25, Newmont Mining Corp. dropped $2.75 to $45.25, Echo Bay Mines Ltd. declined $1.50 to $9.25 and American Barrick Resources Corp. dropped $2 to $22.

Data base software stocks declined, hurt by recent concern about looming price competition. Oracle dropped $2.375, to $51, Sybase Inc. skidded $4.50, to $56.75, Borland International Inc. dropped $1.25, to $17, and Informix Inc. fell $1, to $22. Cisco, a computer networking company, fell $4, to $43.375.

Advanced Micro Devices Inc. dropped $1.375, to $27.625, after the company said its independently developed 486SX chip was not entirely its own design but builds on rival Intel Corp.'s 386 chip.

Microsoft fell $1, to $74.75. Microsoft announced a publishing venture yesterday, a day after reports saying that an inquiry into Microsoft's business practices had been extended into Europe.

Among oil stocks, Pennzoil lost $2, to $66.75 a share. The lower oil prices bolstered some airline issues. UAL, the parent of United Airlines, gained $1.25, to $144.25.

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