Concern over profits, Clinton upend stocks Dow index falls 155.76 day after record gain

Nasdaq loses 36.31

Wall Street

September 10, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF Bloomberg News contributed to this article.

A day after exploding for a record gain, the stock market slumped yesterday as investors took profits and several large, high-quality companies reported that they expect weaker third-quarter earnings.

The market was also buffeted by growing concerns over the Clinton presidency, analysts said.

The Dow Jones industrial average sank 155.76 points, or 1.94 percent, to 7,865.02 after Tuesday's record 380.53-point rise, which was spurred by Federal Reserve Chairman Alan Greenspan's hint Friday that interest rates could be cut.

The sharp rise in the market, however, gave way to worries that the problems dogging Clinton could damage the U.S. economy and erode investors' already shaken confidence in the stock market.

"When your government is in total turmoil, your confidence goes down the chute," said Cummins Catherwood, managing director for Philadelphia-based Rutherford, Brown & Catherwood, which oversees $570 million. "When your confidence goes down the chute, you're not going to pay 30 times earnings for GE."

Besides the bellwether Dow, which is made up of 30 blue-chip stocks, the Standard & Poor's 500 stock index slid 17.26 points, or 1.69 percent, to 1,006.20. The Nasdaq composite index, heavily weighted with technology and health care companies, fell 36.31 points, or 2.19 percent, to 1,624.55.

Among other broad indexes, the Russell 2,000 index of small capitalization stocks lost 9.24 to 352.69; the Wilshire 5,000 index fell 155.56 to 9,198.70; the NYSE composite index skidded 8.02 to 500.57; the American Stock Exchange composite index trimmed 11.29 to 613.44; and the S&P 400 midcap index slid 6.03 to 299.18.

The Sun-Bloomberg Maryland index of the top 100 Maryland stocks by market valuation dropped 3.78 to 178.19.

Stocks on the New York Stock Exchange declined by more than a 2-to-1 ratio, and volume totaled 696.94 million shares.

Several large companies, including Procter & Gamble Co., the top U.S. maker of consumer goods, were hammered after warning of weaker earnings.

P&G's stock fell $7.75 to $71.875 after the company said its fiscal first-quarter earnings will fall short of expectations.

General Electric Co., the largest U.S. company by market value, fell $1.6875 to $80.1875.

Merrill Lynch & Co. Inc., the nation's largest brokerage, fell $6.75 to $59.25, its lowest level all year, after the firm said a $135 million trading loss during July and August will cut into third-quarter profit.

The Dow's losses accelerated at about 3: 20 p.m. yesterday, when independent counsel Kenneth W. Starr sent Congress his report of the investigation into Clinton's affair with intern Monica Lewinsky.

Alfred Goldman, chief market strategist at A. G. Edwards & Sons Inc. in St. Louis, said that he doesn't believe that if Clinton resigns or is impeached that the economy would be derailed.

"The bottom line is that any president is a figurehead when it comes to the economy," he said. "It is the outlook for corporate earnings that moves the stock market, not the resident in the White House."

Goldman said yesterday's pullback was normal after a surge in stock prices such as on Tuesday. "You are bound to get some second thoughts," he said.

He believes that the Dow will climb back to the 9,000-point level sometime next year. And he expects that economic problems in Asia, Russia and Latin America, which have rattled the stock market and threaten to weaken corporate profits, will be closer to being resolved.

Thomas Galvin, chief investment officer at Donaldson Lufkin & Jenrette, said that before the stock market can begin climbing again, worldwide troubles must be dealt with and issues surrounding Clinton must be settled.

"What continues to be the core of the crisis globally is the economic problems have become a political problem with no leadership from any of the superpowers," he said. "That doesn't make for a sound investing climate."

Galvin said investors need to feel more confident that the risks have been contained.

"Then, I think the market could clearly begin to re-instill confidence and start its path toward record levels," he said.

He expects the Dow to reach 10,000 in the next six to nine months.

But earnings predictions still guide the market. Yesterday, Boise Cascade Office Products Corp., Borg-Warner Automotive Inc., FirstCity Financial Corp., Eagle USA Airfreight Inc. and Walter Industries Inc. joined P&G and Merrill in warning that earnings would fall short of expectations.

Boise Cascade Office Products fell $1.75 to $10.875 after warning that third-quarter profit would fall below second-quarter results because of increased costs and lower paper prices.

Borg-Warner Automotive lost $1.75 to $43.0625 after it said third-quarter earnings will be reduced by the recent strike against General Motors Corp.

FirstCity Financial dropped $2.625 to $13.625 after saying it expects to add $10 million to $14 million to loan loss reserves in the third quarter because mortgage prepayments in its residential servicing portfolio are rising.

Sears, Roebuck & Co. and Federated Department Stores Inc. fell on concern that an economic slowdown will hurt sales. Sears dropped $4.125 to $46.375 and Federated fell $1.6875 to $44.50.

Walt Disney Co. fell $1.375 to $27.75 after Jessica Reif Cohen, first vice president at Merrill Lynch & Co., cut her forecast for the entertainment company's earnings to 19 cents a share in the fourth quarter from 21 cents.

Bergen Brunswig Corp. was among the day's gainers, rising $3.75 to $40.75 on expectations that the drug distributor will report above-average earnings growth.

Pub Date: 9/10/98

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