U.S. stocks extended a three-week-long slide yesterday as computer issues tumbled in the late afternoon, and as higher Treasury bond yields threatened to lower the amount investors are willing to pay for next year's profits.
In what is becoming typical of Wall Street's volatile sessions recently, at least four series of computer-guided "sell" orders helped drive stocks lower. The New York Stock Exchange twice imposed limits on such trading, once when the Dow Jones industrial average surged 50.36 in the first 15 minutes of trading, then when the Dow slid 51.51 in the final 15 minutes. The Dow closed 36.52 lower at 6268.35.
"It's very likely we're going to have a slowdown in the earnings growth" of many computer stocks, said Daniel Leonard, a money manager in charge of the $833 million Invesco Strategic Technology fund. "We have to deal with the fact that 1995 and 1996 were terrific years, and what do we do for an encore in the third year? Plus, we're doing it in a year when valuations are stretched," he said, referring to high price-to-earnings ratios.
Even Boeing Co.'s plan to buy McDonnell Douglas Corp. for $13.94 billion couldn't rescue the market, though it drove up a host of defense stocks. Oil and natural gas stocks also gained, responding to higher crude and gas prices.
Since reaching a record Nov. 25, the Standard & Poor's 500 Index has fallen 4.8 percent, lowering its year-to-date advance to 17.1 percent.
The broad market fared twice as badly as the Dow in percentage terms. The S&P; 500 slid 7.66, or 1.05 percent, to 720.98 and the Nasdaq Composite Index tumbled 23.93, or 1.86 percent, to 1260.98.
The Russell 2000 Index of small-company shares dropped 3.7, or 1.04 percent, to 350.48, and the Wilshire 5000 Index of stocks on Nasdaq and the New York and American exchanges fell 74.08, or percent, to 6998.62
Declining issues outnumbered advancers by 2 to 1 on the NYSE, where volume declined to 447.6 million from 454.5 million on Friday.
Semiconductor, software and computer stocks were the market's big losers as prices swooned in the final hour of trading.
International Business Machines Corp. fell $4.25 to $148.63, Compaq Computer Corp. slumped $4.63 to $75.38, Dell Computer Corp. dropped $2.75 to $54.38 and Texas Instruments Inc. slid $3.13 to $62.38.
Part of the blow came from unexpectedly weak earnings at Circuit City Stores Inc. The computer retailer said fiscal third-quarter earnings fell 37 percent as costs climbed and personal computer sales weakened, even with stiff price cuts.
CompUSA Inc., down $1.25 to $18.38, and Circuit City, down $1.25 at $29.75, "have a few problems" that may be leading to concern about the manufacturers that supply them, said Invesco's Leonard.
Stock market investors flew into a head wind blown partly by the bond market and partly by Barton Biggs, head of global investment strategy at Morgan Stanley & Co., traders said.
Yields on benchmark 30-year Treasury bonds jumped to 6.62 percent after a Federal Reserve report of stronger-than-expected industrial production in November raised concern that inflation will quicken.
Biggs lowered the amount of stocks he recommends investors keep in their portfolios to 56 percent from 74 percent, raised the amount of bonds in his model portfolio to 29 percent from 26 percent and raised the amount of cash he advises keeping to 15 percent from zero.
Boeing Co. gave a boost to the 30-stock Dow average when it agreed to buy rival McDonnell Douglas, strengthening its position as the world's largest aerospace company. Boeing vaulted $4 to $100.75, single-handedly adding almost 12 points to the Dow, while McDonnell Douglas Corp. surged $10.50 to $62.50.
Pub Date: 12/17/96