Stocks tumble as investors lock in profits
August 26, 1999
New York — Investors who drove blue-chip stocks to record highs this week paused to take profits Thursday, knocking the Dow Jones industrial average down more than 120 points. Technology stocks once again outperformed the rest of the market.
The Dow fell 127.59 to close at 11,198.45. The Standard & Poor’s 500 fell 19.78 to 1,362.01, and the Nasdaq composite index fell 30.98 to 2,774.62.
”We’ve had a big run from some big names,” said Charles White, portfolio manager at Avatar Associates. ”Some of the stocks that have run the farthest are correcting the most today.”
Consumer goods stocks that posted strong gains in recent sessions fell back as investors collected their gains. Procter & Gamble dropped 2 3/8 to 100 1/4.
Oil stocks contributed most heavily to the weakness in the Dow and the S&P 500. Crude oil prices tumbled Wednesday after inventory figures showed unexpectedly weak gasoline consumption as the peak summer driving season winds down.
Prices recovered slightly Thursday, but tropical storms forming in the Gulf of Mexico kept traders on guard. Dow component Chevron fell 2 3/8 to 92 11/16 and Royal Dutch/Shell fell 2 5/8 to 61 11/16.
Recommended Stories For You
Major gains by selected Internet stocks kept the Nasdaq’s losses fairly narrow. Priceline.com., which allows customers to bid on prices for airline tickets, rose 7 7/16 to 72 5/8. Net2Phone, which has signed several distribution deals in recent days, gained 5 13/16 to 75 15/16.
Paper stocks were mostly higher after Merrill Lynch raised its rating on Georgia-Pacific, which rose 2 1/2 to 44.
Without any fundamental change in market conditions, traders said investors were stepping back after the Dow reached a new record close of 11,326.04 on Wednesday. Stocks rose after the Federal Reserve raised interest rates Tuesday and suggested that inflation now appears to be on hold.
The Commerce Department offered additional evidence Thursday that the growth of the U.S. economy has not escalated too sharply. The revised gross domestic product the total output of goods and services grew at a substantially slower annual rate of 1.8 percent in the second quarter, reflecting the drag from a bloated trade deficit.
Another portion of the report showed profits of U.S. companies decreased at an annual rate of $9.2 billion in the second quarter. That marked the biggest drop since the end of 1997. In the first quarter of the year, profits rose at a $47.1 billion rate.
That figure surprised economists who have watched many U.S. companies tally strong profit growth.
”Earnings releases from many corporations suggested a fine profit performance, but the aggregate results were less than stellar,” said Michael Moran, chief economist at Daiwa Securities America Inc.
White said some market participants remain unconvinced that the Fed will leave interest rates untouched for the rest of the year. In 1998, the Fed cut rates three times to help stimulate the economy and lift Asian economies out of their financial crises.
”It’s perfectly logical to believe that the Fed might want to undo all three of those rate cuts,” he said. The central bank also raised rates June 30.
Bond yields edged slightly higher, to 5.88 percent from 5.86 percent late Wednesday. A rally in bond prices after the Fed’s meeting helped stocks gain ground Tuesday and Wednesday.
Declining issues outnumbered advancers by a 3-to-2 margin on the New York Stock Exchange, where composite volume totaled 866.33 million shares, compared with 1.04 billion the previous session.