Blue-Chip Fears Help Small Firms
The Nasdaq market set its first record high in a month on Friday. Small-company stocks continued to draw money away from the blue-chip sector, which was jostled by growing worries about third-quarter profits.
The Dow Jones industrial average fell 44.83 to 7,822.41, trimming its gain for the holiday-shortened week to 199.99 after Tuesday’s record-setting 257-point leap.
The Dow was off as much as 81 points Friday afternoon, but reversed course when Alan Greenspan - the widely criticized, yet widely respected chairman of the Federal Reserve - publicly dismissed a rumor that he was ill and planned to resign.
Broader stock measures finished mixed. The Russell 2000 index of smaller companies closed at a record high for the seventh consecutive session.
The blue-chips took an early hit after several well-known companies warned of disappointing results for the current quarter and Smith Barney, citing profit concerns, downgraded consumer products giants such as Procter & Gamble, Colgate-Palmolive, and Gillette.
“It was the predictability of the earnings stream that gave people confidence to pay what some considered excessive” prices for such stocks, said Charles White, portfolio manager at Avatar Associates.
“Now you’re starting to see some cracks. You’re starting to see signs that the consistency of earnings might not be there,” said White, noting the recent profit warnings issued by Coca-Cola and Gillette. “I don’t know if that’s a reason to panic, but it’s a little bit of a warning shot that these companies may have trouble from time to time.”
P&G slid 3-7/16 to 133 as the Dow’s weakest component, and the list of big decliners on the New York Stock Exchange was dominated by the companies that issued profit warnings: Tupperware fell 6-11/16 to 28-7/16, Boston Scientific fell 13-1/4 to 62-5/8, and American Standard fell 4-1/8 to 41.
The earnings jitters quickly canceled out the initial relief over a report suggesting that upward pressure on wages - a key force behind inflation - remained fairly tame in August.
Fed officials have repeatedly expressed concern that a strong job market will force companies to boost wages and then raise prices to compensate. Many investors now expect the Fed to raise interest rates in the coming months, slowing the pace of borrowing to protect against inflationary demand.
In a report many analysts discounted as skewed by the UPS strike, the Labor Department said the nation’s unemployment rate crept up to 4.9 percent in August from a near 24-year low of 4.8 percent a month earlier.
With the UPS strike temporarily subtracting 185,000 jobs, there was a net gain of only 49,000 new jobs, slightly less than expected. But the Labor Department also sharply revised its July tally from 316,000 to 365,000, a 17-month high.
Overseas, Tokyo’s Nikkei stock average rose 0.2 percent, Frankfurt’s DAX index rose 0.7 percent and London’s FT-SE 100 rose 0.1 percent.