Dow Off 3.49 as Traders Bemoan Producer Prices
The stock market suffered a small setback today, faced with news of a bigger-than-expected increase in producer prices.
The Dow Jones average of 30 industrials slipped 3.49 to 2,513.42, finishing the week with a net loss of 4.41 points.
Advancing issues and advances ran about even on the New York Stock Exchange, with 750 up, 747 down and 492 unchanged.
Big Board volume totaled 173.24 million shares, against 212.31 million in the previous session.
The NYSE’s composite index was down .02 at 182.37.
The Labor Department’s report that the producer price index rose 0.9% in May, substantially outpacing estimates by brokerage firm economists, dampened hopes that the Federal Reserve would continue soon with what had looked like the start of a move to relax its credit policy.
Nevertheless, some observers said they were impressed with the market’s relatively calm reaction to the news. Unexpected jumps in the producer price index earlier this year touched off sharp declines in stock prices.
The blow apparently was cushioned this time by several factors, including continued strength of the dollar in foreign exchange and a strong bond market.
Yields on long-term government bonds, which were above 9% less than three months ago, fell below 8.2% in today’s trading.
Interest rates plunged and prices rose sharply in the bond market today as traders ignored the price index surge.
The credit market’s bellwether 30-year Treasury bond rose 29/32 point, or more than $9 for every $1,000 in face amount. The bond’s yield, which moves in the opposite direction from price, skidded to 8.22%--its lowest level since early April, 1987--from 8.29% late Thursday.
The price index should have sent bond prices downward; the credit markets have slumped in recent months on bad news about inflation because the Federal Reserve has pushed interest rates higher to keep the economy and inflation under control.
But the market, carried by its own recent upward momentum, did what it has been unable to do for months: shrug off a negative economic report.
Mitchell Held, chief economist with Smith Barney, Harris Upham & Co., said traders decided to continue buying bonds for fear of missing out on the rally.
“Bonds are being viewed for the price,” he said.
“This shouldn’t be happening, but it is,” Held said. “You have markets that aren’t necessarily paying attention to the economic picture.”
A drop in precious metal and other commodity prices--which traders interpret as a harbinger of lower inflation--also helped bonds today, he said.
Secondary Market
In the secondary market for Treasury securities, prices of short-term governments rose 1/32 point to 1/16 point, intermediate maturities rose 3/16 point to 15/32 point and long-term issues picked up 29/32 point, the Telerate Inc. financial information service said.
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 Shearson Lehman Hutton daily Treasury bond index, which measures price movements on outstanding Treasury issues with maturities of a year or longer, rose 3.23 to 1,176.76.
