Like a well-known basketball team of the same name, Wall Street’s blue-chip bulls had a rare off day Wednesday. Many market analysts expressed relief that the historic and perhaps worrisome rise in the Dow Jones industrial average had paused for at least a day.
The Dow industrials slipped 21.68 points, to 5579.55, ending a seven-session streak of record-high closes. New York Stock Exchange volume totaled 417 million shares.
The broader Standard & Poor’s 500 index fell further on a percentage basis, shedding 4.93 points, to 655.58. Nevertheless, winning stocks outnumbered losers by a slight margin on the NYSE and the Nasdaq market. The Nasdaq composite index managed a slight gain of 0.81, to 1088.03.
In explaining Wednesday’s Dow decline, some commentators pointed to Friday’s expiration of options on stocks and stock indexes, an event often preceded by trading volatility.
News late Tuesday that microchip-equipment maker Applied Materials posted better-than-expected quarterly earnings helped stem losses in the computer-technology sector. Applied Materials closed up 62 cents, at $39, after trading as high as $41.12 during the day. The 16-stock semiconductor index on the Philadelphia Stock Exchange, which lost more than 3 percent Tuesday, righted itself with a gain of 0.40, to 194.27.
The Dow Jones transportation average was boosted by a “strong buy” recommendation on UAL, parent of United Airlines, issued Wednesday by an analyst at Morgan Stanley. UAL jumped $8, to $175.87.
The transportation average rose 18.05 points, to 2050.72, after hitting 2064.68. Analysts who follow the Dow theory of investing are looking to the transportation average to top its December high of about 2100 as a signal that the rally in the Dow industrials will continue.
Telephone stocks had a bad day as investors reassessed the recent rally that followed enactment of telecommunications legislation. Ameritech, which closed at a 52-week high of $66.37 Monday, dropped $2.25, to $62.62. AT&T lost 75 cents, to $67.25.
Among other stocks in the news, Chrysler’s largest shareholder once again is casino mogul Kirk Kerkorian with 13.75 percent. Kerkorian had dropped to No. 2 after the mutual fund moguls at Fidelity Investments acquired a 14.55 percent stake. A recent disclosure by Fidelity puts its holdings at 13.1 percent after selling 5.5 million shares.
Treasury Secretary Robert Rubin began previously announced steps to avoid a default on U.S. government debt by tapping certain government accounts and marking them as assets against the $4.9 trillion debt ceiling. Congress and President Clinton have yet to agree on a deal to raise the debt limit, and the entire issue of federal deficits has moved off the front burner in Washington and onto the presidential campaign trail.
Republicans have signaled they would agree to a debt-ceiling increase by the end of February and have turned to talking about lower taxes and reforming the Internal Revenue Service.
Treasury bond prices closed lower ahead of Thursday’s government reports on orders for durable goods and overall factory orders. These reports will include November and December data delayed by the government shutdown.
The yield on the benchmark 30-year Treasury bond rose to 6.09 percent from 6.03 percent Tuesday. One factor in Wednesday’s weakness may have been a seven-year high in the Knight Ridder/Commodity Research Bureau’s index of commodity futures prices. The index breached the 250 mark with a 1-point gain, to 250.68. Higher prices for a variety of commodities, including corn, oil and gold, have pushed the index higher, although most economists believe inflation and the consumer level are well in check.
Another factor on bond trading was a $1.5 billion bond issue by the Canadian province of Ontario and a $1 billion bond issue by Finland. The supply bulge depressed prices and raised yields.
Many commentators have cited the stickiness of the Treasury bond yield within the 6 percent-to-6.10 percent range as a warning sign that market price trends are about to take a turn for the worse. On the other hand, short-term interest rates generally have been moving lower, and stable long-term rates are a highly desirable environment for business planning.
April showers: This year’s April 15 tax deadline carries special significance for the stock market, says Charles Henderson, chief investment officer for Chicago Trust.
Why? “A lot of individual investors will be selling stocks to pay capital-gains taxes,” he said. Many investors bailed out of technology stocks last fall and owe hefty capital-gains taxes on their winnings.
In addition, first-quarter corporate earnings announcements will be under way in mid-April. Most analysts expect corporate profit gains to slow in the current quarter.
Chances that Clinton and the Republicans in Congress will not agree on a capital-gains tax cut or much of anything else of a fiscal nature by mid-April also could depress investor sentiment, Henderson said. Many investors were hoping for some sort of capital-gains tax cut retroactive to some point last year.
Robust earnings growth, lower long-term interest rates and investor optimism about deficit reduction and a capital-gains tax cut were major pillars of last year’s bull market, he said. They may all appear considerably eroded by April.
On the other hand, the flow of funds into mutual funds and other equity investment vehicles shows no sign of slowing, he said.
