Inflation fears jolt U.S. stocks Dow loses 37


September 21, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks buckled yesterday on concern about inflation, as the Dow Jones industrial average suffered its biggest one-day drop since April 2 and bond prices fell.

"The bond market did a big nose-dive late in the day, and that probably accentuated" the weakness in stocks, said Edward Laux, head trader at Kidder, Peabody & Co.

The Dow industrials sank 37.45, to 3,575.80, with almost half of the decline occurring in the final hour of trading. It was the biggest single-day drop since the industrials tumbled 68.63 on April 2, in response to Philip Morris Cos.' plans to discount cigarettes and to a dismal U.S. employment report.

The average shed 17.60 points on Friday, during triple witching, the quarterly expiration of stock-index options and futures and options on individual stocks.

The latest concern over inflation began last Tuesday, when the Labor Department said consumer prices rose an unexpected 0.3 percent in August. A rise in commodity prices yesterday exacerbated concern that inflation might be on the rise, which would push up interest rates and hurt stocks.

At yesterday's close, the average sat 2.1 percent below its all-time closing high of 3,652.09, set Aug. 25. "You've still got a lot of fluff in here,"said Richard Ciardullo, head trader at Eagle Asset Management.

The Standard & Poor's 500 Index declined 3.79, to 455.04, yesterday. Bucking the trend for a second straight session, the Nasdaq Combined Composite Index added 0.10, to 740.21, after hitting a high of 744.41 yesterday.

The day after the quarterly options expiration tends to be a bad day for stocks, said Philip Smyth, analyst at Birinyi Associates Inc., a research firm. Computer-guided sell orders sliced about 16 points off the Dow industrials and about 2 points

off the S&P 500, Mr. Smyth said.

Drug and health care stocks were among the biggest decliners yesterday, as investors anticipated tomorrow's release of the Clinton administration's proposal to overhaul the nation's $900 billion health care system, traders said.

Merck & Co. dropped 75 cents, to $30.625, and American Home Products Corp. finished down $1, at $61.125.

"People are waiting to see the whole plan" on health care, said Richard Hoffman, chief investment strategist at Cowen & Co. The administration is "gambling the new plan is going to cut costs by $250 million, but the question is who's going to absorb it?" he said.

Declining common stocks outdistanced advancers by a margin of almost 10-to-7 on the New York Stock Exchange. Trading was ...'...'TC moderate, with about 221 million shares changing hands on the Big Board.

The concern about inflation comes amid growing pessimism about the strength of corporate earnings and the economy. Yesterday, Nike Inc. and Clean Harbors Inc. joined the list of companies that said earnings would fall below expectations.

On Friday, Westinghouse Electric Corp. and Eastman Kodak Co. said third-quarter profits would be lower than expected.

Aluminum Co. of America, Minnesota Mining & Manufacturing Co., and International Paper Co., companies that depend on a strong economy for earnings growth, led yesterday's decline in the Dow industrials.

The benchmark 30-year bond fell 22/32, to yield 6.09 percent, up 5 basis points from Friday. The record low yield of 5.84 percent was set Sept. 8.

"I'd be very wary of inflation fears right now," Mr. Ciardullo said. The Commodity Research Bureau's index of 21 key commodities, considered a barometer of inflation, jumped 0.95, to 216.27, surpassing what chart watchers considered to be a near-term top of 216.

Gold, viewed as a hedge against inflation, rose $2.70 an ounce, to $355.50, and West Texas Intermediate, the benchmark U.S. crude, soared 63 cents, to $17.70 a barrel.

Oil prices gained amid expectations that cold weather in the Midwest might spur demand for heating oil, traders said. Prices also got a boost from a Wall Street Journal article saying crude prices might rise even if OPEC doesn't curb production.

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