A disappointing auction of 2-year Treasury notes and quarterly profit warnings regarding Delta Air Lines, Micron Technology and Aetna kept stocks and bonds in a defensive mood Tuesday.
The Dow Jones industrial average slipped 26.77 points, to 7970.06, on New York Stock Exchange volume of 522 million shares.
Broader market indexes, such as the Standard & Poor’s 500-stock index, also edged lower, as losing stocks outnumbered winners by about a 5-to-4 ratio among NYSE-listed issues.
But the Nasdaq composite index added 7.91, to 1697.36, its fourth straight record close. And the Russell 2000 index of small-company stocks extended its record-high-closing streak to eight sessions, adding 0.44, to 449.42.
Semiconductor stocks rallied, despite the warning late Monday by memory-chip firm Micron Technology, which Tuesday dropped $3.44, to $37.06, as the most-active NYSE issue. The 16-stock semiconductor index on the Philadelphia Stock Exchange gained more than 1 percent.
Among stocks in the news, Salomon Brothers jumped $4.44, to $71.50, a new high, on rumors the investment firm is a takeover target. Bankers Trust, the rumored buyer, fell 6 cents, to $124.19. Delta Air Lines dropped $4.62, to $102.06, after telling analysts its fiscal first-quarter results would be less than Wall Street expected. Aetna, the second-most-active NYSE issue, dropped $9.06, to $93.69, after a profit warning by analysts.
The yield on the Treasury’s sale Tuesday of $15.5 billion of 2-year notes was 5.79 percent, higher than analysts had expected. The Treasury auctions $11.5 billion of 5-year notes Wednesday.
Federal Reserve Gov. Susan Phillips added to the market’s cautious tone when she told a Florida audience, “I do think the risks to the inflation outlook seem to be tilted to the upside.” The Federal Reserve’s monetary policy committee meets Tuesday but is not expected to make any change in its current short-term interest rate target of 5.50 percent.
Phillips said the stock market, whose major indexes are at or near record highs, is not something to worry about. On the contrary, the stock market “is providing a good deal of low-cost capital for expansion,” she said.
After the close of Nasdaq trading, software developer 3Com reported quarterly earnings in line with estimates. It was the last of the major corporate earnings reports expected this week.
Moody’s Investors Service reported that the rate of chargeoffs of uncollectable subprime auto loans, made to borrowers with poor credit histories, rose again in July and stood 50 percent higher than a year earlier.
“Aggregate performance continues to slide,” as lenders make more risky loans to meet competitive pressures, Moody’s said.
The dollar gained against the Japanese yen but fell against the German mark. Germany’s central bank hinted it might raise interest rates to avert a sudden spike higher in the value of the dollar against the mark. But analysts said the outlook for the dollar remains bullish.
Small is big: An early look at mutual fund performance in the third quarter shows the best performance among so-called micro-cap funds–funds investing in the smallest of the small companies.
The steady growth of small-company stocks, which are favored by many stock pickers who manage mutual funds, overwhelmed the popular large-cap index funds. The strong dollar has not hurt small-company stocks as much as the huge multinationals, and earnings momentum appears to have shifted to the small-cap universe.
Through Sept. 18, micro-cap funds were up 20.7 percent in the third quarter and 33.97 percent for the year-to-date, the best-performing category in both periods, according to Lipper Analytical Services in New York.
S&P 500 index funds were up 7.31 percent in the quarter and 29.06 percent year-to-date.
General equity funds were up 10.99 percent. “Should this number not decline before the end of the quarter, it will mark the first quarter in six years to show double-digit increases, an outstanding performance for an aging bull market,” Lipper said.
International funds were generally losers. Funds in Lipper’s Pacific Region (without Japan) fell 14.07 percent in the quarter through Thursday, reflecting financial crises in several Asian nations this summer.
On a year-to-date basis, gold funds made up the worst-performing category, off 25.55 percent.
Technology, natural resources (energy) and financial service were the best-performing sector categories in the quarter.
The best-performing fund in the quarter, according to Lipper’s preliminary data, was the Fidelity Select Energy Services fund, up 35.81 percent. The worst was the Landmark Emerging Asia Markets fund, down 38.98 percent.
Local news: Chicago-based LaSalle Partners plans to offer a mutual fund investing in real estate investment trusts and other real estate-related companies.
– Ha-Lo Industries, Niles, a provider of promotional and advertising materials, will join the Standard & Poor’s SmallCap 600 index Thursday.
– General Employment Enterprises, an employment-services firm based in Oakbrook Terrace, declared a 3-for-2 stock split in the form of a 50 percent stock dividend to be paid Oct. 31 to shareholders Oct. 17.
– Dominick’s Finer Foods, Northlake, plans to repurchase $200 million of its 10 7/8-percent notes due 2005. The grocery store chain also announced a new, $575 million line of bank credit.
