FINANCIAL MARKETS : Dow Has Worst Week in 15 Months
Stock prices closed out their worst week in more than 15 months with another loss Friday in selling blamed on spreading recession worries.
The Dow Jones index of 30 industrials slumped 18.21 to 2,440.06, stretching its loss for the week to 91.81 points.
That marked the biggest weekly drop for the Dow since it tumbled 108.42 points March 21-25, 1988.
Declining issues outnumbered advances by about 7 to 5 in nationwide trading of New York Stock Exchange-listed stocks, with 641 up, 900 down and 442 unchanged.
Volume on the floor of the Big Board came to 170.49 million shares, against 167.10 million in the previous session.
The market has been under pressure since the government reported Wednesday that the index of leading economic indicators posted a larger-than-expected 1.2% decline in May.
More evidence of a decline in business activity came Friday morning with the news of a 2.5% drop in new factory orders in the same month.
Until recently, Wall Street has been welcoming news of slower growth in hopes of a “soft landing” that would allow for reduced inflation and lower interest rates without much harm to corporate profits.
But in the past few days, analysts say, investors have begun to look more closely at the possibility that the Federal Reserve might not be able to pull off that tricky mission.
As evidence, they noted that stocks in the past couple of days have not responded favorably to continuing declines in open-market money rates.
The week brought a downbeat end to what had otherwise been a strong first half of 1989 for the market. Since New Year’s, the Dow has risen 271.49 points, or 12.52%.
Losers among the blue chips included Philip Morris, down 1 3/8 at 138 5/8; American Telephone & Telegraph, down 1/2 at 35; American Express, down 3/4 at 33 1/4; General Electric, down 3/4 at 51 5/8, and Merck, down 1 at 66 7/8.
Even amid the general caution, takeover rumors and speculation buoyed such issues as Avon Products, up 1 3/8 at 35 7/8, and Syntex, up 1 3/8 at 49 1/2.
Lin Broadcasting fell 7 1/8 to 115 7/8 in the over-the-counter market. McCaw Cellular Communications said it was reviewing the terms of its $120-a-share offer for the company after Lin lost a court case involving rights to cellular telephone systems in New York and Philadelphia.
In London, stock prices fell sharply for the second consecutive session as weakness on Wall Street and worries about the outlook for British interest rates weighed on the market. The Financial Times 100-share index fell 31.0 points to 2,151.0. For the week, the index lost 16.5 points.
Tokyo stocks also closed mostly lower as Japanese investors continued to fret about the future of Japan’s ruling Liberal Democratic Party and Prime Minister Sosuke Uno. The 225-share Nikkei share index finished at 32,948.69, down 7.62 points.
Credit
Bond prices rose as a positive mood prevailed in light, pre-holiday trading.
The U.S. Treasury’s bellwether 30-year bond rose 25/32 point, or $7.80 per $1,000 in face value. Its yield, which moves in the opposite direction to price, declined to 8.03% from 8.09% late Thursday.
Bonds have benefited recently from a convergence of positive influences, including recurring strength in the dollar, signs of slower economic growth and, just this week, an influx of funds from the stock market.
Marshall B. Front, an economist at the Chicago investment and mutual-fund management firm of Stein Roe & Farnham, said the market was bullish throughout the session. However, volume remained light in advance of the July 4 holiday.
Front said investors are becoming more convinced the Federal Reserve will soon ease credit in step with recent weak economic signals.
Also contributing to the market’s positive mood was a continued weakness in the stock market early in the day after Thursday’s sharp drop, when the the Dow Jones industrial index lost about 46 points, its steepest dive since mid-March.
Marilyn Cohen, of the Beverly Hills-based brokerage Capital Insight, said a lot of money had moved from the stock market into the bond market as a result.
The federal funds rate, the interest on overnight loans between banks, was quoted at 9.25%, down from from 9.688% late Thursday.
Commodities
A drier-than-expected forecast for soybean-growing regions evaporated fears of rain and sent soybean prices soaring on the Chicago Board of Trade.
But the Agriculture Department’s quarterly crop reports, released after the close of trading, showed higher-than-expected inventories of soybeans, corn, and especially wheat. Analysts predicted that Monday’s prices could slide as a result.
On other markets, cattle prices dipped while pork futures were mixed, coffee prices rallied, energy prices were mixed and precious metals closed higher.
A revised forecast deleting rain and calling for dry conditions over the next several days sparked the rally in soybeans and corn, analysts said.
Expectations for good harvesting weather over the next few days in the Southwest winter wheat regions kept the lid on wheat prices.
Trading was light in anticipation of the crop reports, which showed 465 million bushels of soybeans, 3.419 billion bushels of corn and 694 million bushels of wheat on hand as of June 1.
Wheat settled 1 cent to 7.75 cents lower, with the contract for delivery in July at $3.9725 a bushel; corn settled 3.75 cents to 5.75 cents higher, with July at $2.6675 a bushel; oats were 3 cents to 3.50 cents higher, with July at $1.495 a bushel, and soybeans were 10 cents to 13.75 cents higher, with July at $7.35 a bushel.
Currency
The dollar closed slightly lower against several key currencies after a sluggish U.S. trading session.
Gold prices rose in the United States following declines overseas. Republic National Bank of New York quoted an ounce of gold bullion at $373.50 as of 4 p.m. EDT, up from Thursday’s late bid of $370.15.
Business on the currency markets was light with some traders gone for an extended Independence Day break. Trading is expected to be subdued again on Monday and will be closed in the United States on Tuesday in observance of the Fourth of July.
Samuel Lek, managing director for foreign exchange at Bear, Stearns & Co., said interest rate increases announced Thursday by several European countries took the edge off traders’ appetite for dollars.
“There is less upward pressure on the dollar due to higher European interest rates and expectations of Fed easing,” said Lek.
Interest rate movements typically influence currency values. Lower U.S. interest rates relative to foreign rates would make returns on dollar-denominated investments less attractive, thereby lessening demand for dollars.
There also might be less incentive to buy dollars if the Federal Reserve Board shifts to a more generous credit policy, something that some economists say is likelier now that economic growth seems to be weakening significantly.
On currency markets in Europe, dealers reported renewed enthusiasm to buy dollars after buying was blunted Thursday by the rate hike announcements.
The Japanese and West German central banks sold dollars during the European trading day but the intervention failed to have much impact, dealers said.
Earlier in Tokyo, the dollar rose to 143.95 Japanese yen from Thursday’s late 142.90 yen. Later in London, the dollar traded lower at 143.60 yen.
In New York, the dollar closed at 143.82 yen, down from 144.00 yen late Thursday. The Fed was believed to have sold dollars and bought the yen, which has been weighed down lately by Japan’s political problems.
In London, one British pound cost $1.5535 late Friday, cheaper for buyers than Thursday’s late $1.5650. Later in New York, it cost $1.5530 to buy one pound, more expensive than $1.5435 on Thursday.
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