NEW YORK -- U.S. stocks fell yesterday as a soaring U.S. dollar threatened profits of companies that sell their products abroad.
"If you have a strong dollar, your overseas profits will get hurt," said Louis Todd, head of institutional equity trading at J. C. Bradford & Co. in Nashville.
The broader Standard & Poor's 500 index, meanwhile, dropped to 558.57, down 1.17. Losses in oil, drug and health-care issues ++ outweighed gains by entertainment, computer and railroad companies.
The Nasdaq composite index, heavily weighted with technology companies, finished down 0.07 at 1,012.37. On Monday, the index reached a record 1,012.44. Intel Corp. and Microsoft Corp. were among yesterday's biggest decliners.
The Russell 2000 index of small companies set its second straight record high, rising 0.40 to reach 300.67; the American Stock Exchange market value index added 0.58 to reach 524.52; and the Wilshire 5000 index slipped 4.87, to 5543.94.
Some 1,201 shares fell for every 1,017 that rose on the New York Stock Exchange. About 313 million shares changed hands, compared with 262.43 million Monday.
The weak dollar boosted many multinational companies' earnings this year by making their products less expensive compared with local goods. The companies also made money when they converted earnings in other currencies back into dollars.
Yesterday, multinationals plunged when it looked as if the process would be reversed. The dollar rose to near six-month highs after the central banks of the United States, Germany, Japan and Switzerland bought dollars to bolster the U.S. currency. Chevron fell $1, to $47.875; Alcoa shares slipped 87.5 cents, to $55.75; and McDonald's shares sank $1.125, to $37.75.
"Throughout the whole rally [this year] the dollar has been weak," said Todd Clark, a senior trader at Rodman & Renshaw. "The minute the dollar turned, people were very quick to sell the multinationals, thinking that it will erode their profits."
Shares of international oil companies also suffered amid concern a stronger dollar will cramp profits. Royal Dutch Petroleum Co., which pays its dividend in Dutch guilders, plunged $2.75, to $117.375. Shell Transport & Trading Co., 40 percent owner of Royal Dutch/Shell Group, lost $1.75, to $69.50. Texaco Inc. shares sank 75 cents, to $64.375.
Weaker-than-expected earnings reports from Dayton-Hudson Corp. and Home Depot Inc. heightened concern earlier in the day that earnings growth has started to slow and third-quarter earnings will disappoint investors. Home Depot shares dropped 75 cents, to $42.50, while Dayton-Hudson's stock sank 25 cents, to $72.75.
Stocks pared losses later in the day as bond prices soared. The rally was triggered by a Johnson Redbook Service report showing department store sales slipped last week, suggesting the economy is slowing enough for the Federal Reserve to lower rates.
Bond yields fell to about 6.91 percent after reaching 7 percent earlier. Lower bond yields make stocks more attractive than fixed-income investments. "Stocks are going to follow bonds," said Barry Berman, head trader at Robert W. Baird & Co. in Milwaukee.
The Dow will trade "between 4,740 and 4,530 in the next month while we have to wait and see what the Fed is going to do," said Don Hays, director of investment strategy at Wheat First Butcher Singer.
Broadway Stores Inc. shares, meanwhile, more than doubled after Federated Department Stores Inc. agreed to buy the financially strapped retailer.