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Fighting finish for the Dow
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August 22, 1997: 4:51 p.m. ET
Blue chips battle back from plunge; broader markets follow
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NEW YORK (CNNfn) -- Friday lived up to its reputation as a frantic day for trading over the last six weeks, as blue chips and technology shares overcame a tumultuous decline at the closing bell.
The Dow Jones industrial average, off as many as 177 points in afternoon trading, ended the day just 6.04 points lower at 7,887.91 as key components reversed sharp early losses. It appeared for a while that the day would mimic last Friday's 247-point collapse, but blue chips battled back and the measure finished with a 190-point gain for the week.
"This has been a normal pullback so far and the overall trend is still bullish," said Everen Securities technical analyst Greg Nie, adding that "I think we will have a market that is choppy in the short term."
Even with the recovery, sentiments remained mixed over whether the market is not in for continued volatility and a change in the leadership that has driven blue chips throughout the bull market.
"I think this is the beginning of a massive shift in interest from the more speculative stocks -- the Coca-Colas -- into less well known names, and it is going to be very painful," said Lou Ehrenkrantz, market strategist with Ehrenkrantz King Nussbaum. "I'm bearish on the blue chips. I'm bearish on the names that led the market. I think that they are overvalued by some 30 percent... However, that does not mean that we are entering a bear market."
Analysts attributed rockiness to a combination of analysts' downgrades, a weakened dollar against the German mark and concerns about the relatively high price of stocks. At the heart of trading was a debate over whether the fundamentals of the bull market had changed. Indeed, fears escalated after minutes released from the Federal Reserve's July meeting showed hawkish policymakers warning they will raise short-term rates at the first sign of unmanageable economic growth.
Volatility encompassed the breadth of the financial markets. Most fell early, then narrowed the losses. The Nasdaq Composite, weighed down by its technology components, ended down 8.67 to 1,598.69, while the S&P 500 index dropped 1.51 to 923.54 and the American Stock Exchange index fell 2.73 to 643.83. Declining New York Stock Exchange declining issues overwhelmed advances, 1,914 to 981, as volume topped 463 million shares.
"People get white knuckles from turbulence," said Joseph McAlinden, chief investment officer at Dean Witter InterCapital, "but I don't think what we're experiencing in the markets is a suggestion that we're on the verge of something really horrible."
In the bond market, the 30-year Treasury shed 14/32 in price while the yield -- which moves in the opposite direction -- climbed to 6.65 percent.
Technology stocks fizzled under the weight of a trio of Nasdaq stalwarts, but even those issues came back in late trading. Microsoft (MSFT) lost 5/8 to 137-1/4 while Dell Computer (DELL) dropped 9/16 to 84-13/16 and Intel (INTC) declined 2-1/4 to 96-1/8 on a downgrade by Merrill Lynch to "near-term neutral" from "buy."
Morgan Stanley jumped in with a statement from an analyst saying that "we clearly would be a buyer of the stock on the weakness today." That curbed some of the slide, but could not reverse it entirely.
Merrill also lowered its rating on Texas Instruments (TXN) to "near-term neutral" from "accumulate," a move that sent shares of the semiconductor maker tumbling 6-1/4 to 118-3/4. Merrill Lynch analyst Tom Kurlak suggested that shares of Intel and Texas Instruments have soared lately, making it the right time for shareholders to lock in profits.
As investors watched the two leading computer-chip stocks lose ground, they quickly sold out of related issues. Applied Materials (AMAT) lost 2-1/2 to 101-5/8 and Micron Technology (MU) slipped 15/16 to 44-15/16.
Tech firm SystemSoft (SYSF) also lined up as a victim, falling 3-1/8 to 9-1/16 after Oppenheimer cut its rating on the stock to "market perform" from "buy."
Meanwhile, MCI Communications (MCIC) dropped 5/8 to 29-15/16 on top of Thursday's 6-point loss while merger partner British Telecommunications (BTY) added 1-13/16 to 68-3/16. The two companies reached a revised accord that reduces the value of the deal approximately 15 percent to $32 a share.
And Ralston-Purina (RAL) gained 3-7/16 to 91-11/16 in reaction to the company's agreement to sell its protein technology unit to DuPont for $1.5 billion. Analysts were impressed with the way Purina has streamlined its businesses to focus on pet food and its Everyready battery operation. DuPont (DD) was not as fortunate. Caught up in the market trend, DuPont shares lost 5/16 to 65-5/8.
-- David Rynecki
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