NEW YORK -- U.S. stocks registered their biggest drop in more than a month yesterday amid signs of weakening corporate profits and a Federal Reserve governor's comment about a possible rise in interest rates.
Stocks reached records earlier this week on the expectation that low interest rates would keep profits growing. Procter & Gamble Co. and Corning Inc. dented that optimism, becoming the latest companies to offer disappointing earnings outlooks.
The Dow Jones industrial average fell 36.15, or 0.61 percent, to 5,930.62. Earlier, the 30-stock average fell 51.43. For the first time in three days, the industrials were unable to crack the 6,000 mark during trading.
Among the Dow's losers, International Business Machines Corp. dropped $2.375, to $126.25; P&G; fell 87.5 cents, to $96.50; and Exxon Corp. fell $1.375, to $86.125.
Rising bond yields helped fuel the decline in stocks. Federal Reserve Gov. Lawrence Lindsey said the central bank's commitment to low inflation is unwavering, and it may be forced to raise interest rates "at some point in the future."
Among broad market indexes, the Standard & Poor's 500 index dropped 3.90, to 696.74, hampered by losses in retail, beverage and bank issues. The Nasdaq composite index fared better because of gains in semiconductor shares, falling only 2.17, to 1,237.98.
The Russell 2,000 index of small capitalization stocks fell 1.26, to 346.10; the Wilshire 5,000 index, comprising stocks on the New York, American and Nasdaq stock exchanges, dropped 36.28, to 6,832.64; the American Stock Exchange market value index slid 1.91, to 580.10; and the S&P; 400 midcap index dropped 0.99, to 242.88.
Shares of companies that sell detergents, toothpaste and other types of consumer products fell on P&G;'s outlook. The $l Cincinnati-based company expects to report a 7.8 percent rise in profit for the first quarter ended Sept. 30, below its historical average of 13 percent.
The Morgan Stanley consumer stock index fell 2.56, to 323.63, as Abbott Laboratories fell $1.125, to $49.50; Wal-Mart Stores Inc. fell 75 cents, to $26.375; Walgreen Co. slid 37.5 cents, to $36.75; Colgate-Palmolive Co. dropped 87.5 cents, to $87.375.
Among the day's biggest losers was Pairgain Technologies Inc., which dropped $6.50, to $74.25. The maker of telephone equipment said it earned 25 cents a share in the third quarter, up from 18 cents a year ago, though gross margins remained at 48 percent.
The yield on the 30-year U.S. Treasury bond, which helps determine how much money banks will earn on loans, rose to 6.83 percent from 6.80.
Shares of banks, brokerages and other financial companies, which fueled the recent rally in stocks, couldn't hold onto their gains. J.P. Morgan & Co. fell 25 cents, to $86; NationsBank Corp. fell 50 cents, to $88.375; PNC Bank Corp. dropped 87.5 cents, to $33.875; National City Corp. fell 75 cents, to $42.125; and Merrill Lynch & Co. fell $1.50, to $69.25.
Among the biggest gainers on the day was Tellabs Inc., which climbed $6, to $79. On Tuesday, the company said third-quarter earnings soared to 50 cents a share from 30 cents, surpassing the 42 cents analysts expected.
Semiconductor stocks also rose. After Tuesday's market close, the Semiconductor Industry Association said its book-to-bill ratio for September rose to 0.99 from a revised 0.93 in August. That means for every $100 of goods shipped last month, the industry took in $99 of orders. Analysts had expected a reading of 0.98.
Among chip stocks, Texas Instruments Inc. rose $2.125, to $57.25; Applied Materials Inc. jumped $1.25, to $29.25; Micron Technology Inc. gained 37.5 cents, to $32.75; and LSI Logic Corp. climbed $2, to $26.125. Intel lost a 3.375-point gain, falling 75 cents, to $100.875. Corning Inc. fell $1.75, to $38.375. The company said it would take a $115 million charge in the third quarter to handle claims related to its marketing and billing practices at some of its clinical laboratories.
Pub Date: 10/10/96