Financial sector weakens markets

January 13, 1995|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday as weakness in financial shares and a plunging dollar countered strength in semiconductor companies.

Lower-than-expected earnings from Federal National Mortgage Association hurt financial shares, while concern that Mexico's currency crisis will hurt U.S. banks' profits clobbered Citicorp. Fannie Mae tumbled $4.625, to $70.875, and Citicorp stock dropped $1.625, to $38.75, extending Wednesday's $1.375 decline.

"The market is nervous about financials," said Kurt Feuerman, a managing director who invests about $1 billion for Morgan Stanley Asset Management. The decline comes a few weeks before the Federal Reserve's policy panel considers an increase in interest rates.

Fannie Mae, a government-sponsored seller of mortgage-backed securities, posted fourth-quarter earnings of $2.02 a share, below analysts' estimates of $2.04. Fannie Mae led the decline in the Standard & Poor's 500 index, which slipped 0.03, to 461.64.

"Fannie Mae's earnings were a disappointment, and that's pulling the market down," said Edward Collins, executive vice president at Daiwa Securities America.

Federal Home Loan Mortgage Corp. slid $2.375, to $51.375, and Student Loan Marketing Association dropped $1.125, to $37.25. Sallie Mae's fourth-quarter earnings fell 22 percent, trailing investor expectations.

The dollar fell to a six-week low of 98.62 yen early yesterday, before closing at 98.73 yen, down from 100.08 Wednesday. The U.S. currency was as low as 1.5260 marks, its lowest level since Nov. 11, before ending at 1.5280 marks, down from 1.5373 marks Wednesday.

A weak bond market also weighed on stocks. The yield on the 30 1/4 -year Treasury bond ended at 7.88 percent, up from 7.83 Wednesday.

The Dow Jones industrial average fell 3.03, to 3,859.00, extending Wednesday's 4.71-point decline. Caterpillar Inc., Minnesota Mining & Manufacturing and Bethlehem Steel Corp. led the decline.

The Nasdaq combined composite index rose 0.77, to 756.51, almost exactly recouping Wednesday's loss. Semiconductor stocks rose in the wake of robust earnings at Advanced Micro Devices Inc. and Motorola Inc. and AMD's settlement of legal disputes with Intel Corp., a move that will save AMD about $25 million in legal fees.

AMD soared $3, to $31.625, and Intel added 87.5 cents, to $67.125. Texas Instruments Inc. rose $1.125, to $76.125.

Advancing stocks slightly outnumbered declining stocks on the New York Stock Exchange. Trading was active, with about 312 million shares changing hands on the Big Board.

Bank stocks fell amid concern Mexico's financial crisis will crimp U.S. lenders' profits, even as Mexican stocks rebounded after President Clinton pledged more U.S. support for the Mexican economy.

Citicorp, which has the biggest presence in Mexico among U.S. banks, yesterday posted an 81 percent increase in fourth-quarter earnings and said it doesn't anticipate "any serious problems" because of Mexico. It released results several days early to try to allay investor concern about Mexico.

That failed to dent perceptions that bank stocks have peaked, some analysts said. "We believe the bull market in money-center bank stocks has probably ended for this cycle," said Arthur Soter of Morgan Stanley & Co. "What's happening in Mexico and Latin America is part of the increased risk in the environment" for banks as U.S. interest rates rise.

Upheaval in Mexico has shaken investor sentiment in the United States for weeks. Although an expanding U.S. economy is boosting domestic profits, "we're held hostage by a plunging currency south of the border," said Alan Ackerman, director of research at Reich & Co.

The international instability benefited gold stocks and gold prices, which rose for the fourth straight day, climbing $4.10, to $381.40 an ounce. Newmont Mining Corp. rose $1, to $36.875, and Newmont Gold Co. rose 87.5 cents, to $35.375.

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