Dow slides on earnings disappointment

January 26, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks slid for a second day yesterday amid disappointment that IBM's fourth-quarter earnings weren't better than some investors expected, traders said.

"The talk around Wall Street had been" that earnings would surpass consensus expectations, said William Lord, vice president in equity trading at UBS Securities. "IBM's a little bit of a disappointment," he said, particularly for people "who bought the stock ahead of the number" in hopes of a positive surprise.

The Dow Jones industrial average closed down 17.45, at 3,895.34, after falling as much as 25.61. It was led by Bethlehem Steel Corp., Caterpillar Inc. and Boeing Co., which reported a 15 percent decline in fourth-quarter profits yesterday. Boeing fell $1.50, to $43.

Declining blue chips also included AlliedSignal Inc. and General Motors Corp.

IBM shares fell 12.5 cents, to $58.50, after dropping as much as $3.375. The computer maker said it earned 62 cents a share in the fourth quarter, compared with a year-ago loss of 8 cents a share.

The results marked IBM's first quarterly profit since June 1992. But the earnings lagged analysts' mean estimate of 63 cents a share.

Led by machinery, oil equipment and auto stocks, the Standard & Poor's 500 Index fell 1.05, to 470.92, after dropping at one stage as much as 1.7.

The Nasdaq Combined Index tumbled as much as 7.13 before finally closing down 4.27, at 786.39, fueled by losses in large technology stocks such as Cisco Systems Inc., Intel Corp., Apple Computer Inc. and Oracle Systems Corp., as some investors began to anticipate a seasonal slowdown in first-quarter business.

More than 10 stocks fell for every seven that advanced on the New York Stock Exchange, where volume grew to 326 million shares from 297 million Monday.

"The only things keeping the market up are good earnings and low interest rates," said Anthony Conroy, head of equity research at Mabon Securities. "If earnings are not better than expected, then stocks are going to go down."

Stocks also were hurt by a rise in long-term interest rates, traders said. Long-term interest rates, reflected in yields on U.S. Treasury bonds, rose after the National Association of Realtors said home resales last year were the strongest in 14 years. That sent the yield on the benchmark 30-year bond to 6.34 percent, up from 6.30 percent Monday.

Not all investors were concerned about the market's decline, which came as many of the largest stock markets overseas rallied. Japan's Nikkei 225 index rose 1.6 percent, the Dax index in Germany climbed 2.25 percent, and France's CAC 40 index gained 0.17 percent.

Henry Frantzen, managing director at Brown Bros. Harriman & Co., doesn't "see anything particularly out of line with the markets. Everybody in the U.S. market is looking for that hiccup that's usually generated by an upturn in short-term rates."

Among Dow industrial stocks that rose, American Express Co. posted the largest gain, climbing $1.25. to $32.75.

The travel and finance company said it would spin off its Lehman Bros. brokerage unit to shareholders and Lehman employees after it pumps more than $1 billion into the firm. Separately, American Express earned 78 cents a share in the fourth quarter, up from 15 cents last year and 4 cents above the estimate of analysts polled by IBES.

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