NEW YORK -- U.S. stocks suffered their worst drop in almost a month after Federal Reserve Chairman Alan Greenspan said yesterday that it would be "unrealistic" to expect more gains of the magnitude recorded during the past two years.
Stocks, led by General Electric Co. and Exxon Corp., dropped with bonds after Greenspan said inflation could accelerate as employers boost wages to lure workers. Investors were betting on tame inflation to send borrowing costs down and profits up.
"Given the recent strength in the stock market, anything that's the least bit negative is going to take its toll," said Alan Sachtleben, chief investment officer for equities at Van Kampen American Capital Inc. in Houston, which has $20 billion of stocks. "This 'inflation is dead' thinking is dangerous in Greenspan's eyes, as it should be for most investors."
The Dow Jones industrial average fell 83.25, or 1 percent, to 8,095.06, its worst drop since Sept. 10. GE, whose stock is worth the most of all U.S.-traded companies, dropped $1.50 to $70.50, and Exxon lost $1.5625 to $65.25.
The benchmark Standard & Poor's 500 index, dropped 9.28, or 0.9 percent, to 973.84. The index set four consecutive records before yesterday's retreat.
The yield on the benchmark 30-year Treasury bond soared 14 basis points to 6.37 percent rose from 6.23 percent yesterday.
Oil, telephone and bank shares -- stocks that tend to perform best when interest rates are falling -- were among the biggest decliners.
Royal Dutch Petroleum Co. fell $1.75 to $57.625; Chevron Corp. lost $1.125 to $87.5625; Mobil Corp. fell 50 cents to $76.50; and Texaco Inc. dropped 43.75 cents to $62.
Chase Manhattan Corp. fell 68.75 cents to $125.6875; BankAmerica Corp. slid $1.25 to $79.375; J. P. Morgan & Co. dropped $1 to $119.375; and Bankers Trust New York Corp. fell $2.5625 to $124.8125.
The Dow Jones Utilities Average, a gauge of investor sentiment on interest rates, slumped 4.71, or 1.9 percent, to 240.81.
Among utilities, Columbia Gas System Inc. fell $2.50 to $73.50; Enron Corp. fell 75 cents to $38.8125; and Consolidated Edison Co. of New York Inc. fell 81.25 cents to $33.375.
Bell Atlantic Corp., whose dividend yield of 3.5 percent is well above the average 1.56 percent of companies in the S&P; 500, fell $1.125 to $83.50. BellSouth Corp. dropped $1.3125 to $47.625 and SBC Communications Inc. dropped $1.50 to $63.25.
Some 1,939 stocks fell and 1,006 rose on the New York Stock Exchange, where 585 million shares changed hands. It was the broadest retreat on the Big Board since Aug. 21.
Netscape Communications Corp. climbed $2.3125 to $37.1875 after the company said the U.S. Defense Department agreed to license its software, expanding the Internet software company's push to gain customers among corporations and big institutions.
Gateway 2000 Inc. climbed $4.1875 to $34 after Prudential Securities analyst Donald Young told clients the direct seller of personal computers is a likely takeover target. However, Gateway said it isn't in negotiations to sell the company and wishes to remain independent.
Boeing Co. rose 37.5 cents to $54.1875 after the company said it won an order for 26 new 737-800 aircraft valued at $1.3 billion from Turkish Airlines, beating an offer from rival Airbus Industrie. An option for 23 more jets could value the transaction at $2.5 billion.
And United HealthCare Corp. climbed $3.1875 to $53.375, a day after Chief Operating Officer Travers Wills reminded investors that the company expects a 20 percent rise in enrollment in its medical-coverage plans in 1997.
Yesterday's most active stocks in U.S. trading were XCL Ltd., Intel Corp., Gateway, Rational Software Corp. and WorldCom Inc.
Rational Software dropped $2.875 to $11.9375 in trading of 11.4 million shares before a halt in the stock. The company warned investors that fiscal 1998 earnings will fall below estimates, and that profits in fiscal 1999 won't match forecasts because of increasing competition.
Pub Date: 10/09/97