Weaker Dollar Fuels Market Fall : Dow Plummets 32.96; Concern Spreads to Bonds, Stocks
The stock market took a hard fall Thursday, stung by deteriorating bond prices, continuing weakness of the dollar and fears of higher interest rates to come, analysts said.
The Dow Jones average of 30 industrial stocks closed at 2,339.20, down 32.96 points from Wednesday. Earlier in the session, it had been down more than 46 points.
Analysts said the stock market’s problems started overnight, when European markets failed to respond well to an announcement out of Washington that the United States and its major trading partners had reaffirmed their determination to stabilize their currencies and reduce their trade imbalances.
“Erosion set in on the dollar; that put off the bond market, which in turn spilled over into stocks,” said Bernadette Murphy, an analyst at the Shaw & Co. securities firm.
On Wall Street, “traders took their cue, and it brought in some (computerized) sell programs,” said Charles Jensen, a technical analyst at MKI Securities Corp. “It began to feed on itself.”
By the end of the day, the dollar was broadly lower against all major currencies, while the bellwether 30-year Treasury issue was down by about 2 points, or about $20 for each $1,000 of face value, its yield 8.08%, compared to Wednesday’s 7.90%. It was the first time in more than a year that it had moved above 8%.
Meanwhile gold prices had soared, picking up $11.50 an ounce to sell at $431.50 at Republic National Bank. At New York’s Commodity Exchange, it sold at $432.80, up $12.60. Gold mining stocks were also higher.
Several analysts said the day’s performance was not surprising, however, in view of the market’s strong gains since the beginning of the year. And they generally agreed that it did not mark the end of the bull market.
Bonds Decline
Centerior Energy led the Big Board’s most-active list, falling 3/8 to 21 3/4. Texaco was down 1 1/2 at 32, while UAL Inc. was up 1 at 73 and AMR Corp was up 3/4 at 55.
Homestake Mining Co., which mines gold, was up 2 7/8 at 37 1/2, while Freeport-McMoran Gold was up 1 3/8 at 19 5/8.
Declining issues outpaced advancing issues by more than seven to two, with 1,249 issues lower, 355 higher and 384 unchanged.
In the credit markets, corporate and municipal bond prices declined sharply.
“The bond market just absolutely collapsed,” said Robert Brusca, of Nikko Securities Co. “The 8% level, which was supposed to be a (psychological) barrier, just collapsed.”
“At the moment there is a confidence quotient that is missing,” said William Brachfeld, executive vice president at Daiwa Securities America Inc.
In the secondary market for Treasury bonds, prices of short-term governments fell about 13/32 point, intermediate maturities fell in the range of 2 3/32 to 1 11/32 point and 20-year issues fell about 2 3/16 point, according to Salomon Bros.
The movement of a point is equivalent to a change of $10 in the price of a $1,000 bond.
In corporate trading, industrials fell 1 point and utilities fell 1 3/4 point. Among tax-exempt municipal bonds, general obligations fell 7/8 in active trading and revenue bonds dropped 1 point in heavy activity.
Yields on three-month Treasury bills rose 29 basis points to 5.78%. A basis point is one-hundredth of a percentage point. Six-month bills rose 15 basis points to 5.83% and one-year bills rose 14 basis points to 5.98%.
The federal funds rate, the interest on overnight loans between banks, traded at 6.25%, down from 6.50% Wednesday.
