NEW YORK -- U.S. stocks took their biggest tumble of the year yesterday, as investors reassessed prospects for sales growth at Intel Corp. and other leading companies in the computer industry.
"People are expecting great things from these companies," said Scott Swanson, analyst at Roger Engemann & Associates, which owns about $660 million worth of Intel, Microsoft Corp. and Cisco Systems Inc. shares. Any indication that growth might slow "gets people selling."
Intel, whose stock almost tripled in the past year, dropped $7.50 to $157.25 after two analysts cut their investment opinions on the world's biggest maker of personal computer microprocessors.
The Dow Jones industrial average dropped 86.58 to 6,746.90. International Business Machines Corp. fell $4.875 to $148.75, accounting for 15 points of the decline.
The Standard & Poor's 500 index fell 10.98 to 778.28, and the Nasdaq composite dropped 25.31 to 1,348.44, dragged down by Intel, Cisco and Microsoft.
The Russell 2,000 Index, considered by investors to be the best measure of small stock performance, fell 2.83 to 365.49; the Wilshire 5,000, an index of stocks on the New York, American and Nasdaq markets, plunged 94.28 to 7,498.36; the American Stock Exchange composite index dropped 3.84 to 585.41; and the S&P midcap index lost 2.62 to 261.64.
Declining stocks outnumbered those that gained by 1,634 to 964 on the New York Stock Exchange. About 580 million shares changed hands, above the three-month daily average of 472 million.
The slide in computer stocks overcame an earlier advance led by brokerage shares, after Dean Witter, Discover & Co.'s $10 billion acquisition of Morgan Stanley Group Inc. fueled speculation that more industry consolidation might be coming.
Prudential Securities Inc. analyst Mark Edelstone downgraded Intel to "hold" from "buy," citing concern that the company may not have software for its new Pentium MMX multimedia chip ready until the end of the year.
The prospect of an Intel slowdown hurt shares of such computer-related stocks as Texas Instruments Inc., Micron Technology Inc. and Intuit Inc. The Morgan Stanley high-tech index fell 3.51 percent, the biggest drop since its 4.04 percent slide on July 23.
Cisco, which controls 80 percent of the market for computer network routers, fell $4.375 to $62.75 on concern that its earnings and revenue growth are slowing.
PeopleSoft Inc., which beat Wall Street earnings estimates as its fourth-quarter earnings soared 86 percent, lost an early gain and tumbled $4.50 to $45.25.
Contributing to the decline, Smith Barney technical analyst William Raftery downgraded Microsoft, Intel, Motorola Inc., Applied Materials Inc. and Atmel Corp. from "buy" to "hold." Smith Barney said the downgrades resulted from the recent rise in prices, and didn't reflect a change in the companies' business outlooks. The firm stressed that the move wasn't a veiled message to sell the stocks.
Brokerages advanced, helping offset the drop in computer stocks. The combination of Dean Witter and Morgan Stanley would supplant Merrill Lynch & Co. as the biggest U.S. securities firm and likely spark a wave of mergers on Wall Street.
A. G. Edwards Inc., Bear Stearns Cos. and other brokerages rose amid speculation they might also become takeover targets. A. G. Edwards added $1.875 to $36.375, and Bear Stearns gained 50 cents to $32.375.
Shares of Paine Webber Group Inc. were the exception, tumbling $2.75 to $36.125. The stock had risen 27 percent in seven days amid speculation that the broker would be the target of a buyout.
Dean Witter rose $1.875 to $40.50, Morgan Stanley jumped $7.625 to $65.
Among companies reporting earnings, Chiron Corp. rose 75 cents to $19.25 after reporting profit of 9 cents a share, a penny above expectations.
Pub Date: 2/06/97