Financial Markets : Stock Prices Dip in Quiet Trading; Dow Off 6.07
Stocks retreated further in quiet trading Monday from near-record levels reached last week, but brokers said the underlying market remains strong.
The Dow Jones index of 30 industrials fell 6.07 points to finish at 2,677.92.
Declining issues outnumbered advances by about 2 to 1 in nationwide trading of New York Stock Exchange-listed stocks.
Volume on the floor of the Big Board came to 142.01 million shares, down from 197.55 million in the previous session.
The market opened lower behind a weak bond market and on continued profit taking after Friday’s steep decline.
On Friday, the Dow Jones industrial index posted its sharpest drop since late June after trading above the all-time high of 2,722.42, reached on Aug. 25, 1987. The market had tested the 1987 peak Thursday, closing at 2,712.63.
Stock prices rose late Monday morning but quickly reversed course again and seesawed through the remainder of the session. Blue chip stocks rallied early in the afternoon, but the broader market failed to keep pace and the rally was soon aborted, analysts said.
“The recent action is a timeout to our rally, not a top out,” said Alfred E. Goldman, vice president of A. G. Edwards & Sons Inc. in St. Louis. “It just shows that sellers are not that anxious to sell.”
A late selloff in the bond market helped weaken stocks in the final hour of trading.
Wall Street analysts said that the market’s pause was not surprising after recent gains and that the market continued to show an underlying strength. Much of the weakness, they said, stemmed from a lack of buying and some computerized selling strategies, not from strong individual or institutional selling.
“The market’s ability to stabilize after last week shows it has some life to it and that upside potential is still viable,” said Charles Jensen, chief technical analyst for MKI Securities Corp.
Among actively traded issues on the NYSE, American Telephone & Telegraph closed down 7/8 at 38 1/2, General Electric lost 3/4 to 56 5/8, Hewlett-Packard fell 2 1/2 to 52 3/4 and Paramount Communications declined 1 3/8 to 59 7/8.
IBM rose 1/2 to 116 1/8, Eastman Kodak advanced 3/8 to 50 3/8 and Procter & Gamble gained 2 1/8 to 126 3/4.
Stocks closed weaker in Tokyo, but trading was so sluggish because of the summer holidays that it was not possible to detect a trend. The key 225-share Nikkei index eased 41.34 points to close at 34,671.62.
London stock prices fell sharply in a retreat from their near 30% surge since the beginning of the year. The Financial Times 100-share index ended down 28.3 points, or 1.2%, at 2,325.9.
Credit
Bond prices plummeted, continuing Friday’s selloff amid a growing belief by traders that the economy is relatively strong and that the Federal Reserve won’t lower interest rates soon.
The Treasury’s benchmark 30-year bond, which lost 1 1/4 points on Friday, fell another 1-13/32 points, or $14.06, per $1,000 in face amount.
The bond’s yield, which moves inversely to price, soared to 8.23% from 8.15% Friday.
Analysts said growing pessimism in the bond market is being fueled by more evidence of strength in the economy, which many experts had believed was tilting toward a recession.
A weakening economy generally stimulates purchase of fixed-income securities such as bonds, which are considered a long-term hedge against slow growth and high inflation.
A strong economy raises the possibility of higher inflation, which erodes the value of bonds. A strong economy also decreases the chance that the Fed will take steps to lower interest rates, which also hurts bond prices.
“Nobody sees any reason to buy anything, and prices continue to erode,” said Robert Chandross, chief economist at Lloyds Bank PLC in New York.
“There’s an ongoing reappraisal about the economy,” he said. “A month ago, the noise you heard was about a recession. A lot of investors and economists were running all over the place seeing who could shout the loudest.”
Recent statistics showing strong retail sales figures for July and a 0.1 percentage point drop in unemployment to an annual rate of 5.2% have reduced fears of a recession.
On Monday, the government said business inventories rose 0.4% in June as business sales fell 0.3%. Economists said the rising inventories still are not unusually large in proportion to sales.
“These are not the type of numbers that beget a recession,” said money market economist Kevin Flanagan at Dean Witter Reynolds Inc.
The federal funds rate, the interest on overnight loans between banks, traded at 9%, up from 8.938% late Friday.
Currency
The dollar finished higher against major foreign currencies in brisk trading, extending last week’s strong rally.
Gold prices also rose. On the Commodity Exchange in New York, gold bullion for current delivery closed at $367.10 an ounce, up $1.90 from Friday. Republic National Bank of New York quoted a late bid for gold at $364.70 an ounce, up $1.20.
Dealers said demand for the dollar held steady from Friday, when the currency jumped to its highest levels since early summer on speculation that U.S. interest rates won’t decline any time soon.
“At the moment no one is focusing on lower interest rates,” said Robert Ryan, a senior trader at Irving Trust Co.
Overseas, the dollar turned mixed Monday, with many traders taking to the sidelines before Tuesday’s Assumption Day religious holiday, which will close many European markets.
In Tokyo, where trading ends before Europe’s business day begins, the dollar rose 1.83 yen to a closing 141.93 yen. It was quoted at 141.70 yen in London, and at 141.925 yen in New York, up from 141.90 Friday.
In London, it cost $1.5840 for a British pound, compared to $1.5850 late Friday. One pound fetched $1.5770 in New York, down from $1.5820 Friday.
Commodities
Copper prices surged on New York’s Commodities Exchange in the wake of a miners’ strike in Peru and expectations that copper will be in short supply in coming months.
In other markets, grain and soybean prices dropped, energy futures were mostly lower, precious metals were up modestly, and meat and pork futures were off.
Copper settled 2.75 cents to 3 cents higher, with the contract for delivery in August at $1.2035 a pound.
The strike in Peru had been planned for several weeks, but it was expected that efforts by the government would prevent the walkout. Talks broke down over the weekend, resulting in the walkout.
“At least two-thirds if not more of the miners are out,” said John Steel, an analyst with Refco Co. in New York, adding that the walkout could have an adverse effect on supplies.
The strike comes as copper production is already suffering due to civilian strife in Papua, New Guinea. Also, a strike at Canada’s Highland Valley Copper Mine in British Columbia continues.
Copper production in Chile could also be disrupted because drought has cut power supplies, Steel said.
Grain and soybean futures closed lower on the Chicago Board of Trade as traders reacted to forecasts of rain in crop-producing areas.
Soybean prices were down sharply, after rising last week on an Agriculture Department report projecting lower-than-expected soybean production.
