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Stocks slip on concern about budget plan


NEW YORK -- Stocks closed lower yesterday amid concern about today's release of the July employment report and the pending budget vote in Washington.

"The economy is sluggish, and there is no reason to think this trend is going to change any time soon," said Dick Adler, who heads the investment committee at Eagle Asset Management, which oversees $5.5 billion in equities.

The Dow Jones industrial average lost 3.08 points, to 3,548.97. The Standard & Poor's 500 Index fell 0.41, to 448.13. Declining common stocks on the New York Stock Exchange exceeded advancing issues by a margin of about 8-to-7. Trading was active, with about 262 million shares changing hands.

The Dow Jones transportation average slumped 19.88, to 1,592.87. That average's decline was led by Delta Air Lines Inc., which said it planned to cut fares by 35 percent for certain flights starting Sept. 15. Delta declined $1, to $49.50.

But the Nasdaq Combined Composite Index rose 1.71, to a record 715.50. The Nasdaq's advance was fueled by gains in Microsoft Corp. and Novell Inc.

So long as interest rates remain low and the economy weak, Mr. Adler said, stocks will remain at current levels. He said it is increasingly difficult to find stocks cheap enough to buy.

Some analysts predicted that a vote by Congress in favor of President Clinton's budget package would trigger a decline in stock prices. "Clinton's economic package will not recharge the struggling economy but rather lock it into the slow-growth path that it has been on since 1989," said David Shulman, equity strategist at Salomon Bros.

Mr. Clinton's proposal, Mr. Shulman suggested, is similar to President Ronald Reagan's budget package in 1981, when that administration shifted its focus from economic growth to deficit reduction.

"The immediate reaction to that bill-signing was that stocks and bonds went down," Mr. Shulman said. "We believe the same could happen in this market after Clinton signs the bill next week. We're looking for a 5-percent-to-10-percent correction."

The higher taxes contained in the budget plan could hurt the economy and the stock market, said Thom Brown, managing director at Rutherford, Brown & Catherwood Inc. The concern, Mr. Brown said, is that the weak recovery could weaken further with the inclusion of higher taxes.

"There isn't an investor alive who thinks higher taxes are good for the economy," said Mr. Brown, who manages about $270 million. He said he is not reducing his equity positions but is maintaining a relatively high cash level of 10 percent.

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