Stock prices pulled back Tuesday in profit-taking amid computerized program trading and signs of nervousness over takeover issues.
Once more, the primary bright spot was airline stocks, which continued to soar, with fresh buyout rumors swirling around AMR Corp., parent of American Airlines.
The Dow Jones industrial average fell 16.73 points to close at 2726.63. However, the Dow Jones transportation average surged 13.69 points to a record 1506.58, led by the rally in AMR shares, which rose $10.25, to $91.50.
Declining issues outnumbered advancing ones by a ratio of about 11 to 6, as volume on the New York Stock Exchange came to 175.21 million shares, up from 131.18 million Monday.
There were unconfirmed rumors on Wall Street that a settlement in a pending insider trading case was causing dumping of so-called ”deal” stocks. The rumors centered on trader Salim B. Lewis, who is to be tried next month on stock-manipulation charges relating to share trading in Fireman`s Fund.
However, buyers moved in quickly when the Dow fell back nearly 25 points in late afternoon, said Richard Zurek, vice president and investment officer with Robert W. Baird & Co.`s Chicago office.
”Any correction in stock prices will be short-lived because there still is a lot of cash out there,” he said. ”Many individuals were late getting into this bull market, and now they are looking for stocks that have been laggards.”
Among stocks that have underperformed, Zurek said, he likes some over-the-counter issues, as well as the stock of International Business Machines Corp., which remains far below its value before the 1987 crash.
Undergirding the continuing strength of the stock market, Zurek said, are relatively low interest rates and strong earnings.
Recent economic reports, including Tuesday`s revision of second-quarter gross national product, indicate that the earnings outlook remains solid, he said.
The market`s reponse to the GNP report was unusually calm, Zurek noted.
”This tells us that investors aren`t overreacting to every little bit of news that comes along. At one point, this report could have caused a 50-point swing in the Dow.”
Despite occasional drops, the Dow has the potential to carry to 2850 or 2950, said Richard L. Evans, chief market analyst for Dow Theory Forecasts, Hammond.
”This market has been moving up in anticipation of strong fundamentals, and it would not take too much additional buying to put the market up a couple of hundred points from this level,” he said.
Upjohn rose $1, to $38.37. Wertheim Schroder analyst Jonathan Gelles cited a positive outlook on the drug company.
Dunkin` Donuts rose $2.25, to $39.75. The company said it will schedule a board meeting to evaluate a sweetened offer from DD Acquisition Corp. of $45 a share, up from $43 a share.
Bolar plummeted $6.75, to $19.50, after the Food and Drug Administration said it is rescinding approval of Bolar`s popular generic hypertension drug.
