Discount Rate Cut Fails to Stir Market : Dow Off a Fraction in Wake of Fed Move
The stock market showed little change Thursday in a subdued response to the Federal Reserve’s latest move to ease credit.
The Dow Jones average of 30 industrials, up 18.42 on Wednesday, slipped back 0.14 to 1,881.19.
Volume on the New York Stock Exchange slowed to 135.18 million shares from 156.60 million on Wednesday.
After the close on Wednesday, the Federal Reserve announced a reduction of its discount rate to 5.5% from 6%. It was the fourth cut in the discount rate this year, as the Fed has sought to counter increasing evidence of a sluggish economy.
Analysts said the news came as a plus for the stock market, in the sense that it signaled a continuing decline in interest rates generally. But they also noted that the market had anticipated the move to a considerable extent with its rally since early this month. In addition, some economists questioned whether lower interest rates would have a great enough impact to alleviate the economy’s problems.
USX Most Active
While there may have been disappointment in some quarters about the market’s behavior, other analysts saw it as positive.
They argued that it was a healthy sign that the market didn’t encounter much pressure from profit takers following the old Wall Street dictum “buy on the rumor, sell on the news.”
USX led the active list, up at 19 3/4 on top of a 2 1/8-point rise on Wednesday, when the company said it had been notified that a Bell Resources Ltd. unit planned to buy as much as 15% of its stock.
Sears, Roebuck & Co. climbed 3/8 to 46 7/8. A Wall Street Journal article quoted analysts as saying that the company’s earnings outlook appeared to be improving.
Among other actively traded blue chips, Philip Morris rose 1 to 76 7/8, but American Telephone & Telegraph dropped 1/8 to 23 1/2 and International Business Machines fell 1 to 138.
Kenner Parker Toys gained 1 5/8 to 23 1/8. The company announced plans to buy back $30 million of its stock.
Rexnord jumped 2 3/8 to 21 7/8, apparently on takeover speculation. Rexnord said it hadn’t been approached by anyone and knew of no reason for the activity in its shares.
American Stores, which estimated lower quarterly earnings, slumped 5 to 61 3/4.
In the daily tally on the Big Board, about four issues rose in price for every three that lost ground.
Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 160.98 million shares.
Large blocks of 10,000 or more shares traded on the NYSE totaled 2,730, compared to 2,918 on Wednesday.
Standard & Poor’s index of 400 industrials lost 0.16 to 274.61, and S&P;’s 500-stock composite index was down 0.10 at 249.67.
Bond Prices Fall
Government bond prices fell while short-term interest rates remained lower.
The bellwether 30-year bond was down 7/16 point to yield 7.20%, up from 7.17% late Wednesday. The 20-year issue fell 5/8 point.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
Credit market analysts attributed the drop in prices to profit taking, or investors’ desire to cash in on the Fed’s decision to trim the discount rate.
“The bond investor had bought on the rumors and sold on the news,” explained Maury Harris of Paine Webber. Bond prices had risen over the past few weeks in anticipation of a discount rate cut.
Analysts said the bond market had little reaction to Thursday’s report of a $5-billion rise in the nation’s basic money supply, known as M1, in mid-August. M1 includes cash in circulation, deposits in checking accounts and non-bank travelers checks.
In the secondary market for Treasury bonds, prices of short-term governments fell 15/32 point and intermediate maturities fell 3/16 , according to the investment firm of Salomon Bros.
In corporate trading, industrials and utilities each fell point in light to moderate trading.
Among tax-exempt municipal bonds, general obligations rose 3/8 point and revenue bonds were down 1/8 point. Trading was light.
Yields on three-month Treasury bills were down 6 basis points to 5.37%. Six-month bills fell 5 basis points to 5.41%. One-year bills were down 4 basis points at 5.42%. A basis point is one-hundredth of a percentage point.
The federal funds rate, the interest on overnight loans between banks, traded at 5.875%, down from 6.125% late Wednesday.
