Program Selling Hits Dow but Broader Market Rises

Computerized program traders and an unhappy bond market made for a bad last day of 1996 for blue-chip stocks Tuesday, but the broad market held up fairly well.

The Dow Jones industrials slumped 101.10 points, or 1.5%, to 6,448.27--the biggest one-day point loss since July 15--with most of the decline coming in the final two hours as several waves of computerized sales of blue-chip shares hit the market.

In the broad market, however, winners edged losers by 1,297 to 1,234 on the New York Stock Exchange and by 2,568 to 1,677 on Nasdaq. The Nasdaq composite index rose 3.28 points to 1,291.03, and the Russell 2,000 index of smaller stocks added 2.62 points to 362.61.

“It’s not a fun way to end the year, but it’s still been a great year,” said Franklin Morton, director of research at Ariel Capital Management in Chicago, noting the Dow’s disappointing final session.

For the year, the Dow was up 26%, while the Nasdaq composite gained 22.7%.

Blue chips’ troubles Tuesday were fueled by the bond market’s bad reaction to better-than-expected economic data.

The Commerce Department said new home sales shot up 14.2% to 772,000 units in November, the steepest advance in 3 1/2 years and fresh evidence that the housing industry continues to help drive the economy. Many analysts expected a smaller increase.

Meanwhile, the Conference Board research group said consumer confidence rose sharply to a seven-year high in December.

The reports resurrected fears that economic growth may be poised to pick up in 1997, which could unnerve the bond market and fuel inflation worries.

In abbreviated bond trading Tuesday, the yield on the bellwether 30-year Treasury bond jumped to 6.64% from 6.54% on Monday.

But traders noted that the bond market was fairly illiquid Tuesday with many players already gone for the New Year’s holiday. “It’s easier to push the market around with so few people at work,” said Patrick Retzer, who oversees $300 million of bonds at Milwaukee’s Heartland Advisors. “The market will recover next week.”

Still, jittery stock investors used bonds’ turmoil as an excuse to take some profits out of high-flying blue chip shares. The Standard & Poor’s 500 index lost 1.7%, dropping 13.11 points to 740.74.

“If we have any type of back-up in rates, it’s, ‘Sell first and ask questions later,’ ” said David Rolfe, chief investment officer in charge of $70 million at Wedgewood Partners in St. Louis. “You can support current [share prices] in a good interest-rate environment, but take away that underpinning and the selling starts.”

Yet many Wall Streeters believe that the economy is more likely to slow than speed up in 1997. Ned Riley, chief investment officer for the Bank of Boston, called Tuesday’s economic data “a contradiction to the general trend established in the second half of the year.” He added that the consumer confidence data “does not seem to mirror the real activity that’s taking place in retail sales. Clearly, the Christmas season was not a major boom for retailers.”

Wall Street’s nervousness about stocks’ current levels reflects the market’s sensational run over the last two years. The S&P; 500 index is up 61% since Jan. 1, 1995, a two-year gain unrivaled since the mid-1950s.

What’s more, the market has never put together three consecutive years of big gains, leaving the most bullish of Wall Street’s prognosticators calling for much more modest returns in 1997. Many bears, meanwhile, believe stock prices will tumble this year, reflecting either higher interest rates (if the economy speeds up) or slower corporate profit growth (assuming the economy remains on an even keel or slows further).

Among Tuesday’s highlights:

* Dow stocks leading the index lower included AlliedSignal, down 2 1/2 to 67; Eastman Kodak, down 2 1/8 to 80 1/4; GE, off 2 3/4 to 98 7/8; IBM, down 2 1/8 to 151 1/2; and J.P. Morgan, down 2 to 97 5/8.

* Bank and other financial stocks, among this year’s best performing stock groups, slid as interest rates rose. Chase Manhattan fell 2 3/8 to 89 3/8, Wells Fargo tumbled 6 3/4 to 269 3/4, NationsBank dropped 3 3/8 to 97 3/4 and Merrill Lynch was off 2 1/8 to 81 1/2.

* Oil stocks also were lower in profit-taking. The stocks surged in 1996 as crude prices remained high owing to tight supplies. Near-term crude oil futures on the New York Merc closed at $25.95 a barrel on Tuesday, up 33% from $19.55 a barrel at the start of the year.

Among oil shares, Exxon lost 1 3/8 to 98, Atlantic Richfield sank 4 1/8 to 132 1/2 and Halliburton fell 2 1/8 to 60 1/4.

* Technology stocks, among the year’s stars, were mixed. Intel lost 2 5/16 to 130 15/16 and Microsoft gave up 7/8 to 82 5/8, but Compaq added 5/8 to 74 3/8 and Netscape gained 1 7/8 to 56 7/8.

* Some investors went shopping among beaten-down smaller issues. Gainers included Michael’s Stores, up 1 3/8 to 12; Claire’s Stores, up 1 1/4 to 13 1/8; Pure Atria, up 1 to 24 3/4; and Data Processing Resources, up 1 1/8 to 18 1/2.

In foreign trading, London stocks ended the year at a record high, with the FTSE 100 index adding 2.8 points to 4,118.5. Sydney shares also ended at a record high. In Mexico City stocks bucked the U.S. market downturn and rallied. Many markets had already closed for the year, with extended New Year’s holidays.

In U.S. commodity trading, the Commodity Research Bureau index of key commodity futures ended Tuesday at 239.61, down 1.5% for 1996 despite oil’s surge. The CRB index had reached a high of 263.79 during the year, but faded as soaring grain prices in spring reversed course with larger-than-expected summer harvests.

The decline in commodity prices helped keep a lid on general inflation during the year.