NEW YORK -- U.S. stocks slumped yesterday as bond yields rose and unexpectedly weak earnings from Sun Microsystems Inc. triggered a drop in computer shares. Signs of easing trade tensions with Japan helped stocks pare losses by day's end.
The drop came on the last trading day before the anniversary of the 1987 crash, when the stock market lost 22 percent of its value in one day. While analysts don't predict a similar collapse lurking, the anniversary led some investors to reflect on whether share prices accurately reflect earnings prospects.
The Dow Jones industrial average fell 91.85, or 1.2 percent, to 7,847.03, halving an earlier 182-point loss. The 30-stock average lost 2.5 percent since last Friday, its worst week since late August.
Yesterday's decline was led by International Business Machines Corp., which fell $4.375 to $95.50. Merck & Co. fell for a second day, losing $2.875 to $94.75, after the company's third-quarter profit fell short of forecasts.
The Standard & Poor's 500 index fell 11.08, or 1.2 percent, to 944.17.
Computer shares were the hardest hit. The Nasdaq composite index, which includes Intel Corp. and Microsoft Corp., fell 32.81, or 1.9 percent, to 1,666.85, recovering from a 53-point drop. The index, which set a record 1,745.85 last week, fell 4.2 percent for the week, its worst drop since the five days ending July 12, 1996.
The heaviest trading was in Sun Microsystems, which fell $3.9375 to $38.375 as more than 40 million shares changed hands. The company reported a fiscal first-quarter profit that fell below forecasts, blaming the effects of a strong dollar on overseas sales.
Seagate Technology Inc. fell $5.3125 to $32 after the maker of computer disk drives said currency losses held earnings down.
Among other broad market indexes, the Russell 2,000 index of small capitalization stocks dropped 7.87 to 449.29; the Wilshire 5,000 index, comprising stocks on the New York, American and Nasdaq stock exchanges, plunged 123.14 to 9,154.76; the American Stock Exchange composite index lost 7.50 to 700.88; and the S&P; 400 mid-cap index slid 5.53 to 330.11.
Four stocks fell for every one that rose on the New York Stock Exchange. About 632 million shares changed hands, 20 percent above the recent daily average.
The Morgan Stanley High Tech Index tumbled 16.60, or 3.3 percent, to 491.67. Late-day buying helped the index come back from a 5.2 percent drop. For the week, the index lost 7.8 percent, its worst week since March 1996.
KLA-Tencor Corp. dropped $4.25 to $58; Compaq Computer Corp. dropped $3.625 to $69.625; Linear Technology Corp. fell $1.4375 to $68.75; and Dell Computer Corp. fell $3.9375 to $94.875. Intel fell $2.375 to $83 and Microsoft dropped $1.6563 ,, to $132.25.
The yield on the benchmark 30-year Treasury bond climbed to 6.44 percent from 6.39 percent. The yield was as low as 6.23 percent on Oct. 7.
Most U.S. companies have matched or topped earnings expectations this quarter. Of the 204 companies in the S&P; 500 to report last quarter's profits, 57 percent topped estimates, 25 percent fell short and 18 percent were in line.
Schlumberger Ltd. rose $1.625 to $85.375 after the company said it earned 72 cents a share in the third quarter, up from 47 cents a year ago and well above the 65 cents analysts estimated.
Gillette rose 18.75 cents to $87.6875 after the company said third-quarter net income rose a larger-than-expected 15 percent. Gillette said higher profits at its Duracell batteries unit, increased sales of higher-cost razor blades and cost-cutting helped offset the effect of the strong dollar.
But rising earnings are no guarantee of higher stock prices these days. P-Com Inc. tumbled $6 to $22 even after the wireless
telecommunications equipment maker's third-quarter profit doubled to 12 cents a share. Results were in line with analysts' estimates.
Pub Date: 10/18/97