Stocks and bonds on Monday remained in their sour mood brought on by Friday’s stronger-than-expected report on new orders for durable goods. Monday’s news of a slight decline in existing-home sales in July had little impact.
The Dow Jones industrial average fell 28.85 points, to 5693.89, on thin New York Stock Exchange volume of 281 million shares. Broader market indexes also slipped as losing issues outnumbered winners by 13-to-9 among NYSE-listed stocks.
An analyst report said that prices for DRAM chips, a key component of personal computers, remain at depressed levels. Micron Technology, a NYSE-listed maker of DRAM chips, fell $1.37, to $22.25.
The Nasdaq composite index lost 3.83 points, to 1139.22. The Nasdaq stock market reported that short-interest–the number of shares sold short among Nasdaq stocks–increased to 1.22 billion shares from 1.15 billion shares.
Given the declining trading volume on all stock markets, the increase in short-interest suggests some traders are betting on further declines in Nasdaq stocks. Selling short involves selling borrowed shares, a strategy that is profitable when the price of the borrowed shares declines. When trading volume is high, however, an increase in short-interest often reflects short-selling by dealers to meet customer demand.
Tobacco stocks got a bounce from Friday’s decision by an Indiana jury to deny damages to the family of a heavy smoker who died in 1987. Philip Morris rose $2.37, to $90.37, as the most-active NYSE-listed stock.
Despite the decision, the jury urged that its verdict not be interpreted as a victory for the industry. “We felt the evidence did show a degree of negligence on the part of the cigarette companies,” the jury said in a statement. Nonetheless, “under the laws of Indiana we found (deceased smoker) Richard Rogers bore a greater responsibility for the condition that caused his death than did the actions of the defendants.”
Mergers in the telecommunications business provided practically all the market news for the day. Omaha-based MFS Communications gained $9.94, to $44.81, after it agreed to be acquired by WorldCom of Jackson, Miss., in a $14 billion deal. WorldCom fell $3.62, to $22.75, although analysts began speculating on who would now try to take over WorldCom.
Bond prices fell ahead of the monthly auction of two- and five-year notes Tuesday and Wednesday. Analysts said the bond market appears to be stuck in place around a level of 7 percent for the 30-year Treasury bond.
The minutes of the July meeting of the Federal Reserve’s policymaking committee indicated sharp differences over the future course of interest rates. Analysts in the bond market fear that the Fed may have slipped into complacency regarding inflationary pressures in the economy. But Monday’s result also could reflect Wall Street pump-priming for this week’s Treasury auctions.
Republican spinmeisters rushed over the weekend to soften Bob Dole’s declaration in Sunday’s Tribune that balancing the budget was more important to him than tax cuts. It seems Dole smoked the supply-side weed but didn’t inhale. That’s good news for the bond market but not for Dole’s campaign, which has pinned its hopes on selling tax cuts above all else.
The yield on the benchmark 30-year Treasury bond was quoted at 6.99 percent late Monday, a four-month high.
Among stocks in the news, Wal-Mart closed unchanged at $26.87 after Morgan Stanley boosted its investment rating on the company to “outperform” from “neutral.”
Hewlett-Packard added $1.25, to $44.87, after the company unveiled a personal computer using Intel’s Pentium chip.
AMR, parent of American Airlines, rose 37 cents, $86.37, as it entered what is likely to be the critical week of labor talks with pilots. Over the weekend, pilots rejected the latest proposal.
Local news: Dean Witter issued a “buy” recommendation on Conseco, the Carmel, Ind.-based financial services firm after the company announced a series of insurance-company acquisitions. Conseco said 1997 earnings per share should reach $5 a share, slightly above the consensus Wall Street forecast of $4.87, if the company can complete by the end of this year its planned acquisitions of four insurance companies, including the remaining shares of Chicago-based Bankers Life Holding, which was already 90 percent owned by Conseco. Conseco closed up $1.69, at $44.
– Morgan Stanley initiated research coverage of Motorola with a “neutral” rating. Motorola closed down 50 cents, at $54.12.
– Insurance broker Arthur J. Gallagher, Itasca, plans to repurchase up to 275,000 of its 15.8 million shares through June 30.
– Mesirow Financial pulled Woodhead Industries, Buffalo Grove, off its focus list and cut earnings estimates for the maker of industrial electrical equipment, citing a higher tax rate and weaker domestic demand. Woodhead slipped 12 cents, to $13.12.
– Donaldson, Lufkin & Jenrette, the lead underwriter of the recent secondary offering of shares by Chicago-based computer consulting firm Whittman-Hart, assigned an “outperform” investment rating on the stock.
– International Jensen, Lincolnshire, a maker of stereo speakers, said a federal judge denied a motion by Emerson Radio to halt Jensen’s planned $11-per-share acquisition by Recoton. Jensen shareholders are to vote on the deal Wednesday. Emerson is a rival suitor.
– CapStar Hotel, a Schaumburg-based hotel chain, went public Friday on the New York Stock Exchange with a 9.25-million-share initial public offering. The stock closed Monday at $18, the initial offering price.
