Dow Dives 21.63 Amid Fears of a Recession

Wall Street stocks fell today amid renewed fears of a recession after the government announced a larger-than-expected fall in the May leading economic indicators.

The Dow Jones industrial average fell 21.63 points to 2,504.74, erasing the 20.49 points the market advanced Tuesday in a broad-based rally.

Declines led advances by more than 2-to-1 in moderate New York Stock Exchange volume of 158.47 million shares against 171.09 million in the previous session.

The NYSE’s composite index lost 1.31 to 181.87.

The Commerce Department announced in the morning that the Index of Leading Indicators, the government’s gauge of future economic trends, fell 1.2% in May, the biggest drop in a year and a half.

The May decrease was slightly greater than economists’ expectations for a 1% drop, and it was the biggest decline since a 1.8% fall in November, 1987.

Stock traders said the news prompted renewed concern that the economy may be slowing too quickly, which would tend to depress corporate profits.

Bond Prices Decline

The credit market’s powerful rally ran out of energy early today as traders sold to collect profits.

Much of the selling involved long-term government securities, which pushed the yield on the market’s bellwether 30-year Treasury bond back up to 8.11% from 8.07% late Tuesday.

The price of the key bond, which moves in the opposite direction to yield, tumbled 1/2 point, or $5 for every $1,000 in face value. The drop erased about half of Tuesday’s gain.

Carl Steen, a market analyst at Drexel Burnham Lambert Inc., pinned the selloff on desires to cash in some winnings after the market’s strong performance lately.

“The price action here is related to profit-taking,” said Steen.

He said there was no fundamental economic reason for the retreat.

The Commerce Department’s report today on the Index of Leading Economic Indicators predictably provided evidence of slower growth.

Bond traders have been bidding up prices on rising optimism that weak business activity would induce the Federal Reserve Board to pursue a more generous credit policy and drive down interest rates.

Some analysts, however, doubt the Fed will ease the rates.

‘The market has been thinking the Fed will ease rates to stimulate the economy but we don’t think the economy is as weak as all that,” Steen said. “We think there’s still strength out there.”

In the secondary market for Treasury securities, prices of short-term government issues were unchanged to down 5/32 point, intermediate maturities lost between 7/32 point to 7/16 point, and long-term issues slid 1/2 point to 9/16 point, according to Telerate Inc., a financial information service.

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 all outstanding Treasury issues with maturities of a year or longer, fell 3.46 to 1,179.09.

In corporate trading, industrials posted minor losses. Moody’s investment grade corporate bond index, which measures total return on a portfolio of 80 corporate bonds with maturities of five years or longer, edged down 0.15 to 326.75.

Yields on three-month Treasury bills rose to 8.31% as the discount rose 2 basis points to 8.04%. Yields on six-month bills rose to 8.18% as the discount increased 2 basis points to 7.76%. Yields on 1-year bills went up to 8.31% as the discount went up 2 basis points to 7.75%.

A basis point is one-hundredth of a percentage point. The yield is the annualized return on an investment in a Treasury bill. The discount is the percentage that bills are selling below the face value, which is paid at maturity.

The federal funds rate, the interest on overnight loans between banks, was quoted at 9 9/16%, up from 9 7/16% late Tuesday.