Dow Tumbles 35.32 to Close at 3-Month Low : Another Increase in Bond Yields Takes Toll
The stock market skidded to its lowest level in more than three months on Wednesday as credit market interest rates surged again to the highest level of the year.
The Dow Jones industrial average closed down 35.32 points at 1,951.09, after a 21.22-point fall the day before, bringing the index to the lowest since Feb. 9, when it was at 1,914.46.
Advancing issues outnumbered declines by more than 4-to-1 in nationwide trading of New York Stock Exchange-listed stocks.
Big Board volume surged to 209.42 million shares from 133.85 million Tuesday. It was the highest level since a 234.16-million share day April 15, although the figure was inflated by nearly a third because of dividend-related trading strategies on Philadelphia Electric, the Big Board’s most-active issue.
Interest rates jumped sharply for the second day in a row. The key 30-year bond yield soared to the highest level of the year at 9.29% as its price fell three-quarters of a point to 98 5/32, or about $7.50 per $1000 face value.
Confusion on Outlook
Investors were still adjusting to Tuesday’s announcement of a stunning decline in the March trade deficit. The $9.75-billion figure was sharply lower than the $12.5 billion Wall Street expected and February’s $13.8 billion. The trade improvement pointed to higher exports and a much stronger economy than the financial markets had figured on.
“We’re getting the same psychology as last September,” said Prudential-Bache Security’s Larry Wachtel. “Interest rates on bonds are widening their spreads (premiums) over stocks (dividends.) And money’s shifting out of stocks.”
Traders were confused about what might happen next, particularly about what the Federal Reserve might do in the aftermath of the strong trade report.
Rumors that it might follow up on last week’s credit tightening moves with a hike in the discount rate unnerved stock market traders. Some said an increase might be needed to restore confidence in the markets and choke off inflation.
The decline in stocks and bonds gained momentum in the afternoon when the dollar drifted lower in confused trading after standing firm in the aftermath of the trade report. Commodity prices, for the most part, also gained, adding to inflation and interest rate fears.
“People have no confidence in their ability of (choosing) what move to make next,” said Peter Rogers of Bank Leu Ltd. “As a result, they’re doing nothing.”
The dollar closed at 1.7005 marks, down from 1.7060 Tuesday, and at 125.00 yen from 125.70.
“The short-term direction for the market depends on where the bond market goes,” said Jon Groveman, head equity trader at Ladenburg Thalmann. “If bonds continue to rampage on the downside, stocks will follow.”
Alan Ackerman, analyst at Gruntal & Co., said, “The trend of the market remains downward due to the lack of leadership from institutions.”
Among the most prominent issues, MacMillan jumped 18 to 68 7/8 following the disclosure that Texas investor Robert Bass was offering $64 a share to acquire the publishing concern. MacMillan said it wasn’t for sale.
Lucky Stores was another notable takeover stock, rising 3 to 64 3/8 after rival grocery chain American Stores sweetened its acquisition offer to $65 a share. American Stores fell 2 1/8 to 54 7/8.
Among the biggest blue chip losers, IBM fell 1 to 108 7/8, General Motors fell 1 1/2 to 75, Merck fell 3 to 148 3/8, Boeing fell 1 to 49 1/2 and Procter & Gamble fell 1 7/8 to 71 3/4.
Hewlett Packard dropped 4 5/8 to 57 3/4, apparently reflecting analyst disappointment with the company’s orders and profit margins. Other technology stocks also fell, including Digital, down 2 to 101 3/4, Data General, down 1 to 20, and Compaq, down 1 3/8 to 49 1/2.
Nationwide, consolidated volume in NYSE-listed issues, including trading at regional exchanges and on the over-the-counter market, totaled 235.43 million shares.
The Wilshire index of 5,000 equities closed at 2,516.047, down 35.848 points from the preceding day.
The NYSE index of all listed issues fell 2.14 to 142.51.
At the American Stock Exchange, the market value index fell 3.78 to 292.79. Standard & Poor’s index of 400 industrials fell 4.95 to 291.76, and S&P;'s 500-stock composite index fell 4.04 to 251.35.
In Tokyo, the Nikkei 225-share index closed at 27,767.58 points, down 52.40 points.
In London, the Financial Times 100-share index closed off 11.6 points at 1,777.6.