Stocks down sharply, inflation up modestly IBM drags Dow down 62.13 points


NEW YORK -- A groan from International Business Machines yesterday provoked a yelp on Wall Street when a disconcerting earnings announcement from the computer manufacturer pushed the closely watched Dow Jones industrial average down 62.13 points, to 2,867.82.

After announcing first-quarter earnings would be only about half of consensus expectations, IBM's share price tumbled 12 3/4 , to 115 1/8 , a change that by itself depressed the Dow more than 25 points.

"If IBM hadn't fallen almost 13, it would have been a normal day and no one would have cared," said Larry Wachtel, a market analyst with Prudential Securities.

Volume on the floor of the New York Stock Exchange was 177 million shares, light by recent stand- ards but above average for the past year.

Declining issues exceeded rising ones by approximately a 2-1 ratio, indicating a poor but not disastrous session.

And declines in other critical, if less popular, indexes were moremodest. While the Dow declined by 2.1 percent, the broader Standard & Poors 500 -- the benchmark for professional money managers -- fell only 1.5 percent and the Nasdaq Composite, the benchmark small-stock index, fell by only 0.75 percent.

The disparity between market measures stems from the narrowness of the Dow (it has only 30 stocks) and how its level is calculated (it uses a formula that weights a company's importance solely by the price of its shares).

Since IBM's shares sell by almost three times the average of the other 29 Dow issues, IBM's share price movement has almost three times the impact on the Dow's daily fluctuations.

Still, even discounting for the nuances, it was a tough day for Wall Street. A report on inflation shocked many analysts, who had expected that a tough economy would cap price increases, and raised concerns that the Federal Reserve Board's ability to stimulate the economy by reducing interest rates may be undermined.

Moreover, IBM's announcement raised concerns that pervasive optimism for the prospects of export and technology-oriented companies may be unfounded.

"The market is getting a case of first quarter earnings jitters," said Thom Brown, managing director of Rutherford Brown & Catherwood, a Philadelphia money management firm.

"IBM is blaming a good chunk of the problem on foreign markets and those were the markets, according to many economists, that were supposed to hold up and pull us out of recession but they are falling into recession themselves and IBM is just showing how they slipped," Mr. Brown said.

Yesterday's decline in the Dow was the worst since last October andit follows a concerted 500 point rally that began in early January.

But Richard McCabe, market strategist at Merrill Lynch, noted that, overall, the market has flattened out in the past month, with sporadic gains in some issues mere- ly offsetting similar losses in others.

That, and other discouraging signs, were largely being ignored because of the general optimism stemming from the Persian Gulf war, and the prospect the recession would end in the months ahead.

Mr. McCabe said, "The IBM results may bring the focus back to the difficulties now."

Mr. McCabe added that IBM wasn't the only company yesterday to suggest the near term may be bumpy, with Disney's stock falling 2 1/8 to 121 1/8 after voicing more muted concerns.

"These are big companies making statements and it's fitting for a market that has gone overboard to look for an excuse to go down."

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