Stocks close mixed after Wed. rally

August 26, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday, one day after posting their biggest single gain in almost six months, as rising technology issues offset the effect of falling bonds.

Computer, semiconductor and software stocks were among the best performing stocks after Dell Computer Corp. posted stronger-than-expected second-quarter earnings. International oil, auto and retail issues declined.

Renewed concern about rising interest rates and today's release of revised figures on second-quarter economic growth pulled down many stocks, traders said. "Higher rates are probably going to continue," until investors are satisfied the Federal Reserve is done raising rates to quell inflation, said David Butler, head trader at Kemper Financial Services.

The Dow Jones industrial average dropped 16.84, to 3,829.89, one day after soaring 70.90, to 3,846.73, its highest point since March 23. Caterpillar Inc., International Paper Co. and Eastman Kodak Co. -- among Wednesday's gainers -- were among yesterday's biggest decliners.

Among broader market indexes, the Nasdaq composite index climbed 3.08, to 754.80, its third straight rise, boosted by rising prices for technology stocks such as Oracle Systems Corp., Intel Corp., Novell Inc., Microsoft Corp. and Cisco Systems Inc.

The Standard & Poor's 500 index fell 0.95, to 468.08. Fewer than six stocks declined for every five that rose.

Technology stocks vaulted higher after Dell said second-quarter earnings jumped to $29 million, or 65 cents a share, including a charge of $6 million, or 15 cents a share, for losses on derivative securities. A year ago, Dell lost $76 million, or $2.03 a share.

Dell closed unchanged, at $35.125, after rising as high as $36.50. The effect of its earnings spread throughout the industry, though, since its "operating earnings were a little bit better than expected," said Larry Kinney, manager and vice president of Nasdaq trading at SoundView Financial Group in Stamford, Conn.

Investors also saw signs of an uncharacteristically strong semiconductor market in late August.

"We haven't seen that slowdown that everybody was talking about" in technology, "especially in the personal computer area," Mr. Kinney said. Rising demand for PCs translates into higher requirements for various kinds of semiconductors.

Optimism about growth in demand drove up International Business Machines Corp. $2.125, to $69.50, its highest level since Oct. 16, 1992.

Technology "is where the earnings visibility is," said Richard Eakle, president of a research firm in Fair Haven, N.J. that also manages assets of about $35 million. Semiconductors and personal computers are used in so many more industries, such as automobiles and even housing, than they were during earlier periods of economic growth, that many investors have underestimated demand, he said.

Among other technology issues, Intel spurted 93.75 cents, to $65.125; Compaq Computer Corp. surged $2.125, to $38.25; Texas Instruments Inc. rose $2.875, to $81.625; LSI Logic Corp. gained $1, to $30.875; and Digital Equipment Corp. rose $1.25, to $24.25.

Yields on the benchmark 30 1/4 -year Treasury bond jumped yesterday to 7.54 percent, from 7.46 percent Wednesday, enough to hurt large stocks whose business is closely tied to swings in the economy, but not enough to damage investors' confidence about companies whose earnings are growing rapidly, said SoundView's Mr. Kinney.

EMC Corp. rose $1.50, to $17.625. The maker of information storage and retrieval products was repeated as a "buy" at Morgan Stanley. "They have a product one-fifth the size of IBM's, yet the capacity is 10 times greater," Mr. Eakle said.

Micron Technology Inc., a maker of memory chips, jumped $2.375, to $43.25. The stock stand to benefit from rising sales of personal computers, analysts said.

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