First profit-taking of '94 ends streak of Dow highs

January 12, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks declined yesterday, breaking a string of record highs in 1994, as investors cashed in gains before today's crucial report on wholesale prices.

"It's a predictable backlash," said Jim Benning, a trader at BT Brokerage. "We were up so much the past few days."

The Dow Jones industrial average fell for the first time this year, declining 15.20, to 3,850.31. On Monday, the average soared 44.74, to a record 3,865.51, its fourth successive high.

Within the Dow industrials, gains in Minnesota Mining & Manufacturing, American Express, and General Electric offset losses in Aluminum Co. of America, Chevron and Walt Disney.

Standard & Poor's 500 Index slipped 1.14, to 474.13, after gaining 5.37, to a record 475.27, on Monday. The Nasdaq Combined Composite Index fell 1.17, to 785.52, after rising 3.75 Monday, to 786.69, just below its Oct. 15 record of 787.42. The American Stock Exchange Market Value Index rose 0.59, to 479.37.

Electric utilities, drugs, beverages and international oil shares were among the biggest decliners in the S&P 500 yesterday. Automakers, meantime, showed no signs of veering off their record-setting course.

"We've had close to a moonshot rally in blue chips, particularly in autos," said Robert Stovall, president of Stovall/Twenty-First Advisers, which oversees more than $1 billion. "The big surprise is it took until the seventh trading day of the new year for the market to show a little profit-taking. I think it's very impressive."

Stocks didn't fall more yesterday because recent reports on auto and home sales signal expansion in the economy and give investors reason for optimism about corporate profits, said Anthony Dwyer, chief investment strategist at Sherwood Securities.

Five stocks declined for every three that rose on the New York Stock Exchange. Trading slowed from the pace of recent days, with about 305 million shares swapping hands on the Big Board.

Investors are seeking assurance from today's producer price report that inflation is under control as the economy improves, traders said. People will watch the report closely because a rising inflation rate could send interest rates higher and stem the flow of money into equities, traders said. Low interest rates have prompted people to put billions of dollars into stocks in hopes of higher returns.

The Labor Department will release the wholesale price report at 8:30 a.m. today. Economists surveyed by Bloomberg Business News estimate that prices paid by wholesalers fell 0.1% in December. The core rate, excluding food and energy, probably rose a modest 0.2% last month, according to the survey.

Stock investors' confidence that interest rates will stay low as the economy improves was shaken slightly yesterday when rates rose, traders said.

Treasury bond yields crept higher, as investors switched into notes and bills on expectations that the Federal Reserve won't raise interest rates soon, traders said. The yield on the benchmark 30-year bond rose as high as 6.28 percent yesterday, from 6.24 percent Monday. Short-term Treasuries are more susceptible than are bonds to changes in monetary policy.

Automakers, which led Monday's surge, were among the biggest gainers again yesterday. GM rose 25 cents, to $59.50; Ford Motor jumped $1, to $68.25; and Chrysler added 87.5 cents, to $59.625.

Since the beginning of the year auto stocks as a group have posted a total return of 8.09 percent. The group attracted investors with projections of profitability and new vehicles unveiled at last weekend's auto show in Detroit.

Financial stocks were another bright spot yesterday. American Express rebounded $1.25, to $30.75, after setting a three-month closing low of $29.125 on Friday. Federal National Mortgage Association gained 62.5 cents, to $84.125.

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