Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, February 17, 1993 TAG: 9302170030
SECTION: BUSINESS PAGE: A5 EDITION: METRO NOTE: SEE ALSO THE
SOURCE: Associated Press
DATELINE: NEW YORK LENGTH: Medium
MARKET RUNS FOR COVER
The stock market gave a resounding no-confidence vote to President Clinton's plan to raise taxes, staging its biggest flop in 15 months.The Dow Jones average of 30 blue-chip stocks fell 82.94 points Tuesday to 3,309.49, or 2.44 percent. It was the largest point drop since Nov. 15, 1991, when the Dow average fell 120.31 points. All of the most actively traded issues on the New York Stock Exchange and the Nasdaq market declined.
"The market's voting with its feet," said Peter J. Canelo, chief investment strategist at Natwest Securities Inc. "We don't like taxes. Period. End of statement."
In Roanoke, securities brokers said it's too early to tell how companies will react to the president's economic proposals. Clinton didn't say enough in his 11-minute speech Monday to give people specifics about what is going to happen, they said.
"The market never likes uncertainty," said Tyler Pugh, senior vice president and Roanoke branch manager with Wheat First Securities.
Pugh said the market had been doing really well since last year and Tuesday's performance was "casting a note of caution." He said there hadn't been any indication of "wholesale liquidation" by companies.
The sell-off reflected the belief that higher taxes generally reduce Americans' ability and willingness to spend, as well as companies' ability to invest in their businesses.
It also demonstrated skepticism about Clinton's goal of convincing Americans that his $500 billion package of new taxes and spending cuts will help reinvigorate the economy.
Many economists doubt Clinton will cut spending enough to dent the projected 1993 budget deficit of $327 billion and the total $4.1 trillion national debt.
"It's troubling because there's a long history of tax increases now, spending cuts someday," said Richard B. Hoey, chief economist at Dreyfus Corp.
Pharmaceutical stocks led the decline. Clinton last week accused drug companies of price gouging and made them a target of health-care reform efforts.
Merck sank $2.37 1/2 to $38, Bristol-Myers Squibb lost $2.37 1/2 to $56.62 1/2, Glaxo fell 1 to $18.75, Johnson & Johnson dropped $2.37 1/2 to $42.62 1/2 and US Healthcare lost $2.62 1/2 to $45.75.
But the president was more concerned with laying the groundwork for his economic program than agonizing over the market's dive. He brushed off the decline during remarks at a photo session, indicating he didn't think it was related to his plan, and stuck by his pledge to reduce the deficit.
"The people in the stock market have known in general all along what was going to be in the program and the stock market's gone up markedly since the election," Clinton said.
Asked if the tax proposals will have any negative effect on the economy, he said: "I believe if we reduce the deficit it will stabilize long-term interest rates, free up money for growth and increase jobs."
Some economists wondered why a stock-market drop had not occurred earlier. Clinton has hinted at higher taxes for weeks and corporate America has expected to bear a bigger burden since he was elected.
The bond market, a critical influence on interest rates in the economy, wasn't shaken by Clinton's plans. However, the prospect of higher taxes also could threaten bonds. Higher marginal tax rates mean investors need larger yields. Higher bond yields translate to lower bond prices.
Staff writer Charlyne H. McWilliams contributed to this story.