NEW YORK -- U.S. stocks fell in a volatile session yesterday caused by concern that rising share prices aren't justified by corporate earnings prospects.
The Dow Jones industrial average snapped its steepest one-month advance in almost five years, closing down 19.38 at 6,528.41 after rising 41.74 and tumbling 50.68. The swing was the biggest since the average seesawed through a 137.1-point range Nov. 6.
Texaco Inc. paced decliners, falling $1.50 to $100.50.
"There is a sense that this just can't keep going the way it has been, so we see big swings," said Lary Aasheim, money manager at CoreStates Investment Advisers with $17 billion in assets.
Aasheim said he has been putting new money into large, easily sold stocks in anticipation of a possible sell-off in U.S. markets. "Valuations are teetering," he said.
The drop came after a blazing run that sent the Dow up 8.6 percent this month -- its biggest one-month gain since December 1991.
"With the market at levels this high, it is very sensitive to everything," said Joseph DeMarco, head of equity trading at HSBC Asset Management.
Among broad indexes, the benchmark Standard & Poor's 500 Index fell 1.07 to 755.96 and the Nasdaq Composite Index climbed 0.83 to 1,281.20. About 527 million shares changed hands on the New York Stock Exchange, well above its three-month daily average of 416 million. The S&P; 500 is trading at 21.01 times earnings, near its highest in 15 months.
IBES International Inc. says Wall Street is only expecting growth of 17.3 percent in 1997. Typically, investors prefer price-to-earnings ratios more or less equal to the expected growth rate, not 22 percent higher than expectations for growth.
Stocks drew no help from the bond market. The yield on the benchmark 30-year Treasury bond rose 2 basis points to 6.44 percent after falling as low as 6.36 percent. Traders were reluctant to drive yields lower without more evidence that the economy is slowing enough to keep inflation under control. Higher yields mean companies pay more to finance their businesses.
The Dow's drop, caused in part by computer-guided selling, triggered the New York Stock Exchange's "uptick rule," which limits the computer-guided selling and buying that investors use to move big blocks of shares.
Texaco fell amid concern over a boycott against the company sparked by anger over widely published racist comments made by corporate executives.
Deere & Co. fell $2.63 to $44 after the company said net income rose to 68 cents a share, less than the 74 cents Wall Street was expecting. Other construction equipment also lost ground amid concern that their earnings also could be weak, investors said. Caterpillar Inc. fell $2 to $78.13 and Case Corp. lost $1.25 to $52.63.
Shares of oil service companies, among the year's top performers, fell on apprehension about higher labor costs and lower crude prices caused by the return of Iraqi oil to the world market. Schlumberger Ltd., the largest of the group, fell $4.38 to $103.75.
Yesterday's drop in the market was only the fourth decline in 18 sessions. The Dow soared past 6,500 Monday after breaking 6,000 for the first time Oct. 14.
While declining stocks outnumbered advancers 1,414 to 1,085 on the New York Stock Exchange, some of the country's biggest companies gained.
Disney rose $2.50 to $76 after reporting unexpectedly strong earnings. And Texas Instruments Inc. shares jumped $4.38 to $60.88 after it signed a 10-year cross-licensing agreement for semiconductor patents with Samsung Electronics Co., after a delay of almost a year as the two wrangled over terms of the accord.
International Business Machines Corp. rose 37.5 cents to $158 after its board authorized it to buy back $3.5 billion in stock. IBM's shares have been trading at their highest point in more than nine years.
Pub Date: 11/27/96