Stocks fall as technology issues wither on investor concerns

September 16, 1995|By Bloomberg Business News

NEW YORK -- U.S. stocks fell yesterday as technology issues withered on concern that earnings won't grow fast enough to satisfy investors. Trading swelled as options and futures expiration drove demand for stocks.

Technology shares dropped after Apple Computer Inc. warned investors that its earnings will be "significantly" below estimates, and Oracle Corp. reported a profit that only matched Wall Street expectations. The warnings fanned concern that tech stocks will short-circuit if investors' high expectations aren't met this quarter.

The Dow Jones industrial average fell from a record high, dropping 4.23, to 4,797.57, after surpassing 4,800 Thursday for the first time. It was the 30-stock average's second drop in 11 days, and the average rose 2 percent for the week.

Shares of Aluminum Co. of America, Eastman Kodak Co., International Paper Co. and Boeing Co. fell the most.

The Nasdaq composite index, dense with tech stocks, tumbled 15.86, to 1,051.10, its biggest drop since a 35.70-point decline July 19. That day, semiconductor company Intel Corp.'s stock plunged 11 percent on disappointing earnings. The index is down 1.5 percent since it set a record of 1,067.40 Wednesday. Apple shares slumped $4.125, to $35.875, and Oracle tumbled $7.25, to $37.625.

"Some tech stocks have started reaching too far from what the fundamentals support," said Robert Robbins, market strategist at Robinson-Humphrey Co.

The drop in technology stocks weighed on the broader Standard & Poor's 500 index, which fell 0.26, to 583.35, after reaching a record Thursday. It was the first time the index didn't register a record in nine sessions.

Of the stocks gaining in the S&P 500, shares of long-distance, drug and beverage companies rose.

Among broad market indexes, the Russell 2000 index of small capitalization stocks fell 1.83 points, to 314.29; the Wilshire 5,000 index, comprising stocks on the New York, American and Nasdaq stock exchanges, dropped 12.23, to 5,805.2; the Amex market value index slid 2.19, to 550.58; and the S&P 400 midcap index slipped 1.19. to 216.69.

Yesterday's most active stocks in U.S. composite trading were Oracle, Intel, Apple, Imatron Inc. and MCI Communications Corp.

Expectations of slowing economic growth rose after the University of Michigan's preliminary index of consumer sentiment for September plunged, meaning personal spending -- which accounts for two-thirds of economic activity -- could be poised to slow.

Drug companies Merck & Co. climbed 62.5 cents, to $53.125; Eli Lilly & Co. rose 37.5 cents, to $85.375; Pfizer Inc. rose 25 cents, to $48.50; and Warner-Lambert Co. gained $1.625, to $94. Shares of PepsiCo Inc. jumped 50 cents, to $49.75; Anheuser-Busch Cos. gained 75 cents, to $61; and Coca-Cola Inc. gained 25 cents, to $66.625.

Trading volume rocketed because yesterday was "triple witching," when futures and options on U.S. stock indexes and options on individual stocks expire at the same time. Orders to buy or sell large quantities of stocks sometimes lead to imbalances in supply and demand for shares, which can cause prices to change quickly and dramatically.

About 466 million shares traded on the New York Stock Exchange, with more than 100 million of them changing hands in the first 10 minutes of trading. The three-month daily average volume for the 6 1/2 -hour trading day is about 339 million shares.

It was the most active day since July 19, another day technology stocks careened downward.

Among the most active stocks, AT&T rose 87.5 cents, to $58.25 on word the company has begun eliminating jobs in a restructuring of its money-losing computer unit that could reach 10,000 jobs and will lead to a $1.2 billion charge in the third quarter, analysts said.

Shares of Morgan Stanley Group Inc. rallied $3.625, to $95.875, after it was announced the company's shares will be added to the S&P 500 index Sept. 21. Mutual funds that buy stocks based on that index's makeup -- so-called index funds -- are obliged to purchase the shares.

For technology stocks, it was the second time this week that a computer company warned investors that it was having difficulty getting parts and that earnings results would lag.

On Wednesday, International Business Machines Corp. told analysts its earnings will fall short of expectations because of problems with certain technology in the company's newest mainframe systems. The S&P computer index fell 5.9 percent this week.

Among other tech issues, Intel's shares fell $1.5625, to $62.125; 3Com Corp. shed $1.875, to $43.50; Applied Materials Inc. weakened $4.75, to $100.50; Sun Microsystems Inc. fell $1.875, to $55.625; Electronic Arts Inc. tumbled $3.125, to $38.375; and Cirrus Logic Inc. fell 75 cents, to $55.25.

Microsoft Corp.'s stock fell $1.4375, to $93.4375, even though Merrill Lynch & Co. raised its estimate of fiscal 1996 earnings to $3.09 a share from $3.05.

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