Stocks close mixed in sluggish trading

May 14, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday as the prospect of slower growth at Cisco Systems Inc. battered computer-networking companies, while tobacco shares gained for a second day.

Trading was sluggish amid lingering speculation the Federal Reserve will again raise interest rates when its policy panel meets Tuesday, traders said. Higher rates make interest-bearing investments more attractive than stocks and threaten to crimp economic growth.

"That's the real reason you've seen volume dry up," said William Lord, vice president in equity trading at UBS Securities Inc. About 252 million shares changed hands on the New York Stock Exchange, lagging the 275 million daily average this week. "It sounds to me like summer's coming early this year," Mr. Lord said.

The Dow Jones industrial average closed up 6.84, at 3,659.68, led for the second straight day by Philip Morris Cos., which jumped $1.50, to $52. Speculation is rife that the tobacco and food company may vote at its May 25 board meeting to separate its businesses, which could boost the company's market value to a collective $70 a share, analysts said.

"I'm rooting for a split-up of the company," said Rebecca Barfield, an analyst at CS First Boston Corp. who has a "strong buy" rating on Philip Morris stock. "A spinoff would address the valuation problem permanently."

The Standard & Poor's 500 index gained 0.40, to 444.15, led by tobacco shares. The Nasdaq Composite index dropped 2.69, to 716.92, as Cisco Systems and other computer- networking stocks plunged.

Cisco sank $5.75, to $23.25, after the company told analysts its order backlog has declined and that revenue from one quarter to the next may grow at about 8 percent rather than the historic 12 percent to 15 percent. Kidder, Peabody & Co. and Alex. Brown & Sons both changed their recommendations on the company to "neutral" from "strong buy."

Cisco's trading volume reached a huge 44.95 million shares, representing about 18 percent of the company's outstanding shares.

Cisco's outlook raised questions about the growth prospects for the entire computer-networking industry, one of the hottest stock-market groups in recent months.

As Cisco fell, other computer-networking companies also tumbled. Wellfleet Communications Inc. plunged $8, to $63.50; Cabletron Systems Inc. sank $2.50, to $93.50; 3Com Corp. fell $1.625, to $55; and Synoptics Communications Inc. shed 50 cents, to $18.

The American Stock Exchange Market Value Index dropped 0.78, to 432.57.

Stock investors brushed aside a second day of good news on the inflation front and a rally in the bond market. The Labor Department said the cost of living rose 0.1 percent in April, lower than economists' forecasts for a 0.2 percent increase, and the benchmark 30-year bond's yield closed at 7.49 percent, down from Thursday's 7.56 percent.

Cisco Systems, Intel Corp., Microsoft Corp., Wellfleet Communications and Citicorp were the five most actively traded stocks on the U.S. composite list.

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