IBM Drags Dow Down as Other Indexes Gain

Broad stock measures notched new highs Wednesday in very heavy trading, but IBM dragged the Dow Jones industrials lower amid disappointment that the company didn’t report earnings as robust as other technology bellwethers.

Meanwhile, in other markets, depressed Tokyo shares staged a strong rebound, the dollar hit 46-month highs against the yen and gold slid again.

On Wall Street, the Dow index lost 33.87 points to 6,850.03, in only the fourth decline so far this year.

The Dow was pressured all day by IBM, which ended down 10 at 158, a 6% loss, as investors reacted to its fourth-quarter earnings report issued late Tuesday.

IBM said its earnings rose 18% from a year earlier, slightly less than the most optimistic analysts had expected, as a stronger dollar, disappointing mainframe computer sales and weak demand in Europe hurt results.

As a result, many Wall Street analysts trimmed their earnings estimates, indicating that earlier expectations for the company had run ahead of reality.

“Rather than easily achieve Street estimates, IBM appeared to be huffing and puffing,” warned Steve Milunovich, an analyst at Morgan Stanley.

Merrill Lynch analyst Daniel Mandresh cut his 1997 estimate for IBM from $13.40 a share to $13.

IBM’s report immediately resurrected concerns about slowing corporate earnings growth in general--especially as the strong dollar erodes U.S. companies’ overseas results.

“We’re going on three years of fairly continuous positive surprises, and companies aren’t going to be able to keep that up forever,” said Melissa Brown, director of quantitative research at Prudential Securities.

Yet fourth-quarter results so far are robust--which has unquestionably helped keep the stock market flying. According to data provided by earnings tracker IBES Inc., 56% of companies that have reported earnings so far have beaten estimates, with 27% falling short.

In the broad market Wednesday, stocks seemed to reflect a continuing optimistic view of earnings. The New York Stock Exchange composite index rose 1.23 points to a record 412.80 and the Nasdaq composite gained 11.09 points to a record 1,388.06.

Winners topped losers 21 to 20 on Nasdaq, although losers had a 13-12 edge over winners on the Big Board.

Trading was near record levels: The combined volume on the NYSE, Nasdaq and American Stock Exchange totaled 1.458 billion shares, second only to the record 1.737 billion that changed hands July 16, 1996.

“You’re having tremendous demand for stocks,” said Philip Brown, president of Meridian Investment Co., with $3.7 billion in equities. “You have an economy that isn’t doing that bad. Corporate profits aren’t declining--they just aren’t going to be up as much.”

Stocks again ignored a weak bond market, as traders digested the Treasury’s sale of $17.5 billion in new two-year notes. The notes were sold at an average yield of 5.984%. The Treasury will sell new five-year notes today.

The yield on the bellwether 30-year Treasury bond rose from Tuesday’s 6.78% to 6.83%.

Elsewhere, the streaking dollar reached a 46-month high against the Japanese yen and a 31-month peak against the German mark. It rose to 119.03 yen from 117.94 on Tuesday, and to 1.642 marks from 1.629.

The U.S. currency got a boost as Russia’s Parliament debated whether to demand that President Boris Yeltsin resign because of his poor health. Unsettling international events often send traders into the dollar for safe haven.

The dollar’s strength was bad for gold, which fell $2.10 to $351.20 in New York futures trading.

In Tokyo, the beleaguered stock market surged, with the Nikkei-225 index leaping 3.8%. But many analysts described it as a technical rebound.

Among Wednesday’s highlights:

* Despite IBM’s retreat, other computer industry shares held up. Microsoft rose 2 3/8 to a record 97 3/8, Intel jumped 4 1/16 to a record 152 1/8 and Compaq soared 4 7/8 to 83 3/8 after reporting sharply higher earnings.

* A positive earnings report sent Bristol-Myers Squibb up 1 1/2 to 123 1/8. Meanwhile, Johnson & Johnson jumped 3 7/8 to a record 57 3/8 after reporting healthy earnings Tuesday.

* Travelers Group jumped 2 3/8 to 53 5/8, a record, after saying it would buy $1 billion in stock and boost its dividend.

* Stocks reacting poorly to earnings news included Computer Sciences, down 3 to 73 1/8; disk drive maker Read Rite, down 2 to 29 5/8; and lumber giant Weyerhaeuser, off 1 1/8 to 49 1/8.

* Oil services stocks, recent market stars, were weak. Halliburton lost 2 1/4 to 69, Baker Hughes fell 1 1/4 to 36 5/8 and Schlumberger fell 7/8 to 110 3/8.

* Supermarket stocks were strong, with Safeway up 1 to 48 and Kroger up 2 to 48 1/8.

* Sunglass Hut rose 1 1/4 to 7 1/8 after Montgomery Securities rated it a “buy.”

Market Roundup, D7