Dow index off 46 as slump continues

March 26, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks slumped yesterday for a second day amid concern about rising interest rates and political instability in Mexico and North Korea.

The Dow Jones industrial average fell 46.36, to 3,774.09, led by a slump in International Business Machines Corp., which declined $2.375, to $54, on concern about the computer maker's earnings outlook.

The Dow sank 120.92 points, or 3.1 percent, for the week, closing at its lowest level since Jan. 3.

"There's a basket of peripheral things that aren't serious on their own, but as a group, they're creating problems for the market," said Will Braman, head of equity investments at Baring America Asset Management Co.

The Standard & Poor's 500 Index declined 3.77, to 460.58, as losses in shares of auto and computer companies led the slide.

The Nasdaq Combined Composite Index fell 3.23, to 783.45. On the New York Stock Exchange, 10 common stocks were lower for every seven that rose.

The yield on the 30-year Treasury bond rose above 7 percent and now sits at the highest level since May. The rise in rates was fueled by concern about inflation and speculation that the Federal Reserve may move to raise money market rates for a third time this year.

Earlier this week, Fed Chairman Alan Greenspan said the policy-making Federal Open Market Committee voted to raise short-term rates. Traders interpreted that as a quarter-point rise, to 3.50 percent, in the federal funds rate, charged on overnight loans among banks.

Stocks stumble when interest rates go up in part because rising rates prompt some investors to sell stocks and buy higher-yielding bonds.

"The concern about inflation is completely overstated," Mr. Braman said. "With an economy growing at a rate of 3.5 percent, it's hard to see the inflation rate going much above 2.5 percent and long-term rates going much above 7 percent."

At the same time, corporate earnings are expanding at an annual rate of 15 percent, Mr. Braman said. "The bottom line is you can't get a much better combination for stocks than rising profits and low interest rates."

Also hampering stocks was political instability in Mexico and North Korea, said John Brooks, director of sales and marketing at Notley Group.

The Dow industrials plunged 48.37 points Thursday, after Mexico's leading presidential candidate, Luis Donaldo Colosio, was assassinated late Wednesday.

Mexico's markets, which were shut Thursday, reopened yesterday.

Trading in U.S. stocks was less active than usual, with 249.6 million shares changing hands on the Big Board. That is 16 percent less than the three-month average of 300.79 million shares.

Shares of Cisco Systems Inc., Telefonos de Mexico SA, Novell Inc., Pyxis Corp. and Chrysler Corp. were the most actively traded stocks.

Cisco shares fell for a sixth day on concern about the earnings outlook for the computer-networking industry. The stock declined $1.50, to $33.

Telmex ADRs, each of which represent 20 Series L shares, climbed $2.125, to $62.25, after falling $3.625 Thursday. Among other Mexican ADRs, Vitro SA rose 50 cents, to $21; Empresas ICA Sociedad Controladora SA gained $1.125, to $27; and Coca-Cola Femsa SA climbed $1.125, to $30.25.

Zenith Laboratories Inc. jumped $2.25, to $18, after the company said it won the right to make and market the antibiotic Cefadroxil, the generic equivalent of Bristol-Myers Squibb Co.'s third-largest-selling drug, Duricef.

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