Wall Street struggled Monday to overcome anxiety about the continued fall of the dollar and the possibility of another interest-rate hike in the U.S.
After the Group of Seven nations meeting in Italy took no action to support the dollar, the American currency resumed its decline, falling to a post-World War II low of 97.75 Japanese yen and to a 20-month low of 1.5295 German marks.
Traders sent the yield on the Treasury’s benchmark 30-year bond up to 7.73 percent. There is a general expectation that the Federal Reserve will raise interest rates again by the end of the summer to cool growth in the U.S. further and to make the dollar more attractive.
The Dow Jones industrial average closed down 6.15 points at 3702.99 after being down more than 20 points earlier in the day. The Nasdaq index fell 0.63 to 706.83. Volume on the New York Stock Exchange was 222 million shares.
The big stock story of the day concerned Eli Lilly’s bid to buy PCS Health Systems from McKesson for $4 billion, of which $2.5 billion would have to be borrowed. McKesson’s stock soared, gaining $24.75 to $98, while Lilly dropped $7.37 to $50.
Reports of another frost hitting the coffee crop in Brazil sent stocks of gourmet coffee companies down on expectations prices will rise further. Brothers Gourmet Coffees dropped $1.37 to $12 and Starbucks fell a like amount to $23.87. A Dain Bosworth analyst said Starbucks likely would follow Brothers’ lead soon and raise prices.
Lehman Brothers market analyst Elaine Garzarelli, a closely watched guru since predicting the October 1987 crash, has trimmed her expectations for stocks this year. She now expects the Dow industrial average to trade within a range of 3500 to 3900, down 100 points from her prior estimates.
But she also said to watch for periodic rallies in the near term of 4 to 7 percent.
Heartland report: There’s a lesson here:
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Two years ago, Clarcor of Rockford decided the big spread between the bid and asked prices allowed on the Nasdaq was unfair to its stockholders and opted to go on the more tightly controlled New York Stock Exchange. As a result, the spread between the buy and sell price narrowed from as much as $3-plus on the Nasdaq to about 25 cents on the NYSE.
Sounds like a great deal for stockholders, who now don’t lose several dollars in stock value the day they buy the stock. But it isn’t such a great deal for marketmakers, who earn their bread-lots of bread-by playing the spread.
Marketmakers are more than willing to sell a stock at $20 and immediately offer to buy it back at $17, collecting two commissions for the service. With a spread of just 25 cents a share, there’s a decline in enthusiasm, to put it mildly.
As a result, Clarcor’s stock volume dried up. The company, which is healthy and growing, has seen its stock descend from a high of $22.37 a share in the last year to as low as $16 last week, which can’t make shareholders happy.
The stock finished Monday at $17.25, up 75 cents, on volume of only 6,500 shares.
Lawrence E. Gloyd, Clarcor president and chief executive officer, sounded a little plaintive at a meeting with financial analysts here Monday, part of a “roadshow” tour to tell the company’s story.
Asked why the stock price was languishing, he replied, “I was hoping you could tell me.”
There are other reasons for the decline. Clarcor makes a bewildering variety of products-decorated boxes for chocolates, filters, snap-tops for food products, and other stuff. The company can’t be easily categorized and so doesn’t move as part of a stock group such as “auto parts” or “high-tech manufacturer.”
The company now has focused on filters and closures, and is out telling that story.
Maybe the lesson is to pick an exchange and stick to it. Or work for reform on Nasdaq, which continues to get away with murder and deflect needed regulation.
– NatWest Securities downgraded Illinois Central to “hold” from “buy.” The stock fell $1.37 to $32.87. Safety Kleen was raised to “above average” from “neutral” by Merrill Lynch. The stock gained 50 cents to $17.