Stocks fall after piercing 5,700 Dow industrials close 14 points lower

tobacco shares sag

March 20, 1996|By BLOOMBERG NEWS SERVICE

New York - U.S. stocks fell from record highs as tobacco shares continued a week-long slump on concern that smokers' lawsuits will be hazardous to profits.

The Dow Jones industrial average fell 14.09 to 5,669.51 after rising as high as 5,709.96 shortly after the open its first-ever move above 5,700.

Shares of Philip Morris Cos. and RJR Nabisco Holdings Corp. led the retreat. The government released statements yesterday from former Philip Morris workers that could undermine the industry's claim that it doesn't try to make cigarettes addictive.

"Tobacco companies have a problem, and it's not one that is going to go away anytime soon," said Jeffrey Roberts, managing director at Trendline Research & Management Corp. in Richmond, Va. "Once these stocks discount Armageddon, then I'd think about buying them again."

The U.S. Food and Drug Administration statements from Philip Morris workers alleging that the company aimed for specific nicotine levels in its products clash with industry officials' past assertions. The officials have denied that nicotine is addictive and say it is crucial for the desired taste of a cigarette.

Shares of Philip Morris Cos. dropped $4.875 to $86.375 and shaved about 14 points from the Dow. Walt Disney Co. and International Business Machines also fell.

The Dow industrials' drop came a day after the 30-stock average posted its 18th record of the year. So far in 1996, the 30 industrials are up about 10.7 percent and are on track to eclipse last year's 33.4 percent rise its best since 1975.

Most broad indexes were lower. The Standard & Poor's 500 index fell 0.96 to 651.69 a day after rallying 11.22 points. The Nasdaq composite index was off 1.92 to 1,112.50, its first drop in five sessions. The Nasdaq's drop was led by Intel Corp., down 75 cents at $58.75, and Amgen Inc., off $1.25 at $60.625.

Among broad market indexes, the Russell 2000 index of small capitalization stocks rose 0.26 to a record 328.93; the Wilshire 5,000 Index, comprising stocks on the New York, American and Nasdaq stock exchanges, fell 7.61 to 6406.73; the Amex market value index fell 0.21 to 564.57 and the S&P 400 midcap index slid 0.72 to 231.81.

Still, some 1,295 stocks rose and 1,090 shares dropped on the New York Stock Exchange, where about 440.07 million shares changed hands.

Optimism that the economy is growing fast enough to spark higher corporate profits helped temper the drop. An expanding economy makes it more likely that spending by businesses and consumers will pick up and drive earnings higher, traders said. The economy's strength is catching some analysts by surprise.

Yesterday, the Commerce Department reported housing starts rose 3.0 percent last month. Economists expected a 2.6 percent drop.

Airlines, homebuilders and other stocks that benefit from the extra business generated from an expanding economy gained.

The Morgan Stanley high-tech index fell 2.54 to 332.44, it's first drop in three days.

Among computer shares, IBM dropped $2.875 to $121.75, Gateway 2000 Inc. declined $1.125 to $27.125 and Silicon Graphics Inc. slipped 75 cents to $25.125.

To be sure, some market analysts said stocks are poised to fall after a spectacular 16-month rally that added about 38.2 percent to the S&P 500.

"A lot of optimism is built on what we've seen in the market place, not on what we expect to see in the next few months," said Gail Dudack, a market strategist at UBS Securities Inc. She thinks stocks could fall 10 percent before moving higher, a move that would take the Dow down to about 5103.

Yesterday's most active stocks in U.S. composite trading were Philip Morris with 14.27 million shares, Kmart Corp., Iomega Corp. and Xeikon N.V.'s American depositary receipts.

Pub Date: 3/20/96

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