Earnings concern hurts blue chips Dow index off 1.68


small issues gain

September 29, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday as concern about earnings battered drug, food and retail shares while over-the-counter issues set record highs for the fourth straight day.

The Dow Jones industrial average, which gained 24.59 Monday, to 3,567.70, fell 1.68 points, to 3,566.02, led by Aluminum Co. of America, Sears, Roebuck and Co. and Du Pont Co. Standard & Poor's 500 Index fell 0.27, to 461.53.

Meanwhile, the Nasdaq Combined Composite Index climbed 3.71 points, to a record 763.66, led by Intel Corp., Microsoft Corp. and Novell Inc. Advancing common stocks on the New York Stock Exchange outpaced decliners by about 9-to-8 as about 243 million shares were traded.

Investors' confidence in third-quarter earnings was shaken when Warner-Lambert Co. warned that its quarterly earnings would drop because of regulatory problems at its drug-making plants.

"People are seeing these major companies report shortfalls and they're thinking the whole market could get hit," said Anthony Conroy, managing director of equities at Mabon Securities.

Shares of smaller companies benefited from the concern, said Kenneth Ducey, director of trading at BT Brokerage. Investors are "looking for where the earnings momentum will be in the future, and that's not in the Dow," he said.

Reports that Russian President Boris N. Yeltsin gave an ultimatum for members of the disbanded Parliament to end their occupation of the Parliament building also hurt stock prices, said Jack Baker, managing director for stock trading at Furman Selz. A spokesman for Mr. Yeltsin later denied he planned to issue orders to storm the building.

Lower bond yields helped offset those worries. The yield on the benchmark 30-year Treasury bond fell to 5.94 percent from 5.95 percent Monday and 6.05 percent Friday, but was still above the record 5.84 percent, set Sept. 8. Lower interest rates heighten the appeal of stocks relative to fixed-income investments and ease concern that the economic recovery will falter.

Meanwhile, this week's schedule of initial public offerings put a damper on the market for other stocks, traders said. "The IPO calendar this week is tremendous, and that takes a lot of money out of the market," said Richard Ciardullo, research director at Eagle Asset Management in St. Petersburg, Fla.

Barnes & Noble Inc., the bookstore chain, soared $9.375, to $29.375, after it sold 8.24 million shares at $20 in an initial public offering.

Not all investors were concerned about the outlook for earnings. "None of our warning bells is whooping yet," said Joseph Doyle, principal at 1838 Investment Advisors. "There's no particular misvaluation between bonds and stocks like in 1987, and none between stocks and cash."

The Radnor, Pa., firm has been buying technology stocks such as Intel, HBO & Co., Digital Equipment Corp. and E-Systems Inc. since May, and recently put some of its $3.5 billion under management into Novell.

Warner-Lambert's announcement that third-quarter net income would drop below last year's earnings of $1.22 a share pushed its shares down $1.25, to $66.50, and hurt other drug stocks. The drug company expects full-year earnings of about $4.65 a share. Analysts were projecting Warner-Lambert would earn $1.14 in the third quarter and $4.85 in the full year, according to Institutional Brokers Estimate Service.

American Home Products fell 87.5 cents, to $61.125; Schering-Plough dropped 87.5 cents, to $65.50; Rhone-Poulenc Rorer fell $1.625, to $45.50; and Pfizer Inc. dropped 87.5 cents, to $60.

Auto stocks weakened on reports General Motors Corp.'s third-quarter earnings might fall short of forecasts, Mabon's Mr. Conroy said. GM's third-quarter production will be 110,000 units below its target because of problems with installing air bags and other equipment, the Wall Street Journal reported. GM shares declined 25 cents, to $45, after falling as low as $44.

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