Stocks mostly marked time Thursday, but a late sell-off took Nasdaq stocks lower.
Analysts cited continued worry about higher interest rates and Friday’s expiration of options contracts as factors in an otherwise dull session.
The Dow Jones industrial average slipped 20.65 points, to 10,866.74, on moderate New York Stock Exchange volume of 744 million shares. The Dow traded in just a 79-point range, indicating an absence of spark in the session.
Slumps in Alcoa, American Express, CitiGroup and General Motors–all interest-sensitive stocks–led the Dow losers. Defensive stocks, including Merck and Procter & Gamble and oil stocks Chevron and Exxon, were among the 30-member Dow’s gainers.
The broader Standard & Poor’s 500 index lost 5.40, to 1338.83, although winning stocks outnumbered losers by nearly a 3-to-2 ratio. And the Russell 2000 index of small-company stocks inched ahead 1.88, to 448.02.
But the Nasdaq composite index dropped 35.17, or 1.4 percent, to 2542.23, led by declines in Dell Computer, Intel, Microsoft and Oracle. Lehman Brothers trimmed its earnings forecast for business software developer Oracle.
Internet stocks led the Nasdaq slump. The index of 30 Internet stocks traded at the Chicago Board Options Exchange fell 4.8 percent and stands 26 percent below its April 13 peak. Internet bellwether Amazon.com fell $8.75, to 130.81, after the retailer said late Wednesday it needed to raise $2 billion in new securities to finance its growth and price-discount strategy.
Analysts also pointed to a surge of Internet-related initial public offerings of stock as a factor in the sector’s slump. A new Internet IPO, on-line retailer eToys, jumped $56.56, to $76.56, in its first day of trading. But such gains may be a zero-sum game for Internet investors in the current market climate, as gains in certain stocks match losses in others.
On the Big Board, Internet darling America Online fell $5, to $129.50, as the most-active NYSE stock, despite a rush of “buy” and “strong buy” recommendations by stock analysts and upbeat comments by Fidelity Investments guru Peter Lynch. AOL traded as high as $137.94 Thursday before traders pulled the rug out going into the close.
The prospect of higher interest rates, combined with weak or nonexistent earnings at many Internet-related companies, are finally weighing on the sector, Bill O’Brien, a vice president at Everen Securities, told Reuters.
“If things stay the course as they are now . . . I wouldn’t be surprised to see the (Internet sector) stay flat for the rest of the year,” he said. Despite the recent slump, Internet stocks have gained 37 percent so far in 1999, based on the CBOE Internet index.
Treasury bonds ended little changed. Reports of a wider U.S. trade deficit in March–to a third-straight monthly record, $19.7 billion–did not rattle financial markets.
Dollar days: The dollar managed a slight gain Thursday against the yen and euro, despite news of the yawning U.S. trade deficit.
In congressional testimony, Federal Reserve Chairman Alan Greenspan and outgoing Treasury Secretary Robert Rubin said the widening U.S. trade gap has not yet caused trouble in the U.S. economy, thanks to the strong dollar, but could pose problems later.
For now, the strong U.S. economy means America is having little problem financing its trade gap. Compared with Japan and even Europe, America is the place to invest, and non-U.S. investors need dollars for that purpose.
Economists insist that a persistent widening of the trade deficit, with Americans buying more from abroad than they sell overseas, spells an inevitable economic slowdown at home. You don’t have to look farther than the Midwest farm economy, suffering under weak demand and low prices, to see what happens when exports dry up.
Nonetheless, the overall domestic effects of a U.S. trade gap are muted when many foreign economies are weakening or just recovering. Nations plagued by high unemployment and sluggish output provide only limited competition for U.S.-made goods in many industrial sectors.
Separately, gold prices inched higher in New York futures trading after Greenspan and Rubin said they did not favor gold sales by the U.S. government. Last week, the Bank of England rocked the gold market by announcing plans to sell half its gold reserve. Gold hit a 20-year low Wednesday in London trading.
Rubin said retaining the U.S. gold reserve is part of maintaining the global perception of a stable and strong U.S. economy.
On the COMEX exchange in New York, gold for June delivery added $1.20 an ounce, to $274.70
Local news: Naperville-based Varlen, a maker of transportation equipment, continued to inch above the $35-per-share tender offer announced Tuesday by Amsted Industries in a hostile takeover bid. The stock closed up 44 cents Thursday, at $37.25, after the company posted a 33 percent increase in first-quarter earnings per share, to 84 cents, on record quarterly sales of $193.3 million
– Moody’s Investors Service boosted its credit rating on Chicago-based truckmaker Navistar, citing strong truck demand and Navistar’s ongoing cost-cutting and its success in reducing its unfunded pension and related retiree-benefit liabilities. Navistar rose $1.62, to $54.87.
– Merrill Lynch boosted its near-term investment recommendation on Deerfield-based Walgreen to “accumulate” from “neutral.” The stock gained 81 cents, to $26.44.
