Stocks Fall as Traders Take Profits; Dow Off 7
The stock market retreated from record highs Thursday in profit taking encouraged by a rise in interest rates.
In the bond markets, prices plummeted as traders saw hopes for more rapid economic growth later this year in the latest batch of government economic statistics.
The Dow Jones average of 30 industrials, up 22.51 points in the two previous sessions, slipped back 7.05 to 1,350.92.
Volume on the New York Stock Exchange declined to 131.35 million shares from 159.92 million Wednesday.
Before the market opened, the Commerce Department issued a preliminary report that the economy grew at a 1.7% annual rate in the second quarter of the year.
That marked a sharp downward revision from the 3.1% “flash” estimate for the gross national product issued by the department last month.
Ordinarily, a weaker than expected figure on the economy might prompt a drop in interest rates. This time, however, there were reports that the new data had leaked out to traders Wednesday afternoon.
Volcker Testimony
Furthermore, Paul A. Volcker, chairman of the Federal Reserve, said the most striking aspect of the new figures was evidence of strong domestic demand. Volcker’s comments before the Senate Banking Committee were interpreted to mean that he saw nothing in the data to encourage the Fed to relax its credit policy further.
Interest rates rose in the credit markets, with rates on Treasury bills moving up 14 to 18 basis points, or hundredths of a percentage point. Prices of long-term government bonds, which move in the opposite direction from interest rates, fell $10 or more for every $1,000 in face value.
G. D. Searle jumped 4 to 63 3/4, and Monsanto was up 1/2 at 50. The companies agreed on a plan for Monsanto to acquire Searle for $65 a share in cash.
Savings and loan issues were notably weak with interest rates on the rise. Gibraltar Financial fell 1 1/8 to 10 3/4, H. F. Ahmanson 2 1/8 to 30 5/8 and Great Western Financial 3/4 to 28.
In the blue-chip sector, International Business Machines lost 5/8 to 128 3/4, American Telephone & Telegraph 1/2 to 22 and General Electric 7/8 to 62 3/8. IBM denied speculation that it would introduce a new personal computer this year.
Hewlett-Packard fell 1 1/8 to 36 1/2. The company said most of its U.S. manufacturing and administrative facilities will be closed one or two days a month starting in August as a cost-cutting measure.
Phillips Petroleum led the active list, up 3/8 at 11 3/4. A 5.38-million-share block traded at 11 3/8.
Pittston, which posted higher second-quarter profits, picked up 3/4 to 11 5/8.
The daily tally on the Big Board showed about five issues declining in price for every three that advanced. The exchange’s composite index dropped 0.68 to 112.81.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 155.11 million shares.
Large blocks of 10,000 or more shares traded on the NYSE totaled 2,476, compared to 3,198 on Wednesday .
The Wilshire index of 5,000 equities closed at 2,012.926, down 12.038.
Standard & Poor’s index of 400 industrials fell 1.05 to 214.47, and S&P;’s 500-stock composite index was down 1.27 at 194.38.
The NASDAQ composite index for the over-the-counter market lost 0.89 to 306.88.
At the American Stock Exchange, the market-value index closed at 236.53, down 0.96.
Raymond Stone, manager of financial economics at Merrill Lynch Capital Markets, said the bond market had apparently anticipated the downward revision of the GNP.
He said details of the GNP report, however, indicated that sales were relatively strong and inventories were low at the end of the quarter. Some analysts said that meant that, if demand continues, increased production will be required to meet it.
Increases in economic growth are often accompanied by higher interest rates, which hurt bond prices.
Bond Prices Slip
Near the end of the trading day, the Fed reported that the nation’s basic money supply inched up $200 million in early July. Credit analysts had been looking for essentially no growth in the money supply. The tiny rise caused some additional deterioration of prices in the bond markets.
In the secondary market for Treasury bonds, prices of short-term governments fell 14/32 point, intermediate maturities tumbled by between 1 5/8 points and 2 1/8 points and long-term issues were off as much as 2 points, according to the investment firm of Salomon Bros. The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The Merrill Lynch daily Treasury index, which measures price movements on all outstanding Treasury issues with maturities of a year or longer, fell 0.81 to 106.32 from Wednesday’s close. The Shearson Lehman daily Treasury bond index, which makes a similar measurement, fell 12.10 to 1,112.99, the largest single-day decline in that measurement since Shearson began compiling it in January, 1984.
Yields on three-month Treasury bills rose 20 basis points to 7.15%. Six-month bills rose 22 basis points to 7.28%, and one-year bills were up 24 basis point at 7.39%.
Yields on 30-year Treasury bonds rose to 10.50%, up from 10.30% late Wednesday.
In corporate trading, industrials fell a 1 1/2 points and utilities plunged 1 point in light trading.
Among tax-exempt municipal bonds, general obligations fell 1/2 point and revenue bonds fell 3/4 point in moderate activity.
