NEW YORK -- U.S. stocks slumped yesterday after International Business Machines Corp. told investors that falling prices will make it tougher to keep profits growing.
The announcement dealt a blow to investors who were cheered yesterday by better-than-expected earnings from Intel Corp. and Sun Microsystems Inc.
Felled by IBM, the Dow Jones industrial average sank 70.09 to 5,549.93, its biggest slide since March 8 and sixth-largest this year. Stocks had rallied for the past three days, lifting the Dow 2.4 percent.
IBM, the world's biggest computer company, said its profit margins are shrinking and that a rising U.S. dollar will curb overseas earnings in coming quarters. The company by itself chopped 30.4 points from the 30-stock average, falling $10.25 to $105.25. It was IBM's biggest one-day decline since Dec. 15, 1992, and made it the most active stock as 16.3 million shares changed hands.
Earlier, after reporting first-quarter earnings of $2.48 a share that beat analysts' estimates of $2.39 and last year's $2.12, IBM shares had climbed $4.625. With special charges, IBM said, it earned $774 million, or $1.41 per share.
In the broad market, the Standard & Poor's 500 index tumbled 3.39 to 641.61. The Nasdaq composite index retreated 4.05 to 1,120.87, a day after setting its 11th record of the year.
The Russell 2,000 index of small-company shares dropped 0.72 to 334.85; the Wilshire 5,000 index skidded 27.33 to 6,345.69; and the American Stock Exchange market value index rose 1.07 to 580.38.
Declining stocks outpaced advancing issues by about 13 to 10 on the New York Stock Exchange, where volume reached 465 million shares. Five series of computer-guided "sell" orders also trampled stocks, chopping 37 points from the Dow average, according to Birinyi Associates Inc.
Adding to the cloudy outlook, Linear Technology Corp. told investors that this quarter's earnings may not meet expectations because of slowing demand for its semiconductors.
Linear was the worst-hit stock in the Nasdaq, falling $7.75, or 20 ++ percent, to $31.50. About 12.4 million shares changed hands, making Linear the third most active issue on U.S. exchanges after IBM and Ford Motor Co.
Analog Devices Inc., whose chairman sold 177,800 shares in early March, slumped $3 to $23.875; LSI Logic Corp. fell $2.25 to $31; and Novellus Systems Inc. dropped $1.50 to $48.75.
Sierra Semiconductor Corp. fell for a second day on concern that sales and earnings growth will slow as rivals increase production. Sierra dropped $2 to $16.125, adding to Tuesday's $1.625 decline.
Falling prices for Coca-Cola Co. and McDonald's Corp. dampened the outlook for consumer growth stocks, companies whose earnings are expected to grow no matter how strong or weak the economy is.
Coke, down $1.25 to $80.125, reported quarterly earnings that didn't exceed analysts' estimates. The Atlanta-based soft-drink maker said first-quarter earnings rose to 57 cents a share from last year's 50 cents, equal to the average forecast from analysts.
McDonald's fell $1.625 to $47. Many franchisees are growing dissatisfied with the company and its treatment of them, the Wall Street Journal reported.
Caterpillar Inc. slid $2.75 to $67.75, adding to Tuesday's $1.125 slide when the construction equipment maker reported a 1.3 percent decline in first-quarter earnings. Merrill Lynch & Co. cut its 1996 earnings forecast for Caterpillar yesterday.
AMR Corp., parent of American Airlines, rose $1.50 to $92.875 after its first-quarter earnings jumped to $2.02 a share, surpassing estimates of $1.46.
Overseas stock markets also declined. Japan's Nikkei 225 index fell 0.24 percent. Germany's DAX index lost 0.56 percent, and Britain's FT-SE 100 index fell 0.51 percent.
Pub Date: 4/18/96