STOCKS : Dow Rises 2.71, Shrugging Off Inflation Data
Stock prices ended mixed Tuesday, despite pessimism that swept Wall Street early in the session after the government reported surprisingly strong inflation for March.
The Dow Jones index of 30 industrials, which had been down nearly 25 points in early trading, closed up 2.71 at 2,765.77.
The broader market stayed in negative territory throughout the day. Declining issues outnumbered advancers by a margin of about 5 to 4 in nationwide trading of New York Stock Exchange-listed stocks, with 662 up, 844 down and 499 unchanged.
Big Board volume came to a relatively light 127.99 million shares, down from 142.81 million the previous session.
Prices were down across the board at the opening after the government released two March economic indicators that triggered a plunge on the bond market.
The Labor Department said consumer prices soared an unexpectedly high 0.5% last month, pushing the inflation rate for the first three months of 1990 to its highest level in almost eight years.
Traders were particularly unnerved by a 0.7% rise in core inflation--prices excluding the volatile food and energy categories.
The government also reported industrial production rose 0.7% last month due in large part to increases in the output of automobiles following a major cutback in January.
Both reports punctured hopes that the Federal Reserve might nudge interest rates lower. The Fed has been trying to keep inflation in check and the economy from overheating by keeping rates relatively high.
The Treasury’s bellwether 30-year bond was down more than $10 per $1,000 face value for much of the day, and the losses in the credit markets spilled over to stocks.
But the blue chips, as they have done during a number of recent sessions when there is bad economic news, gradually regained ground, leaving the secondary stocks behind.
This trend, known as a two-tier market, reflects trader caution. While investors are looking to buy, they want to stay with stocks perceived as the safest.
Some analysts saw signs of strength in this pattern.
“The ability to come back shows we still have upside momentum,” said Alfred E. Goldman, an analyst with A. G. Edwards & Sons Inc. in St. Louis. “There’s still sideline cash that’s willing to buy stocks after a modest price decline.”
Earnings reports influenced the performance of some stocks, most notably NCR, which fell 5 3/8 to 65 3/8 and topped the NYSE most active list after reporting a first-quarter profit decline.
General Electric rose 1/8 to 66 7/8 after releasing results in line with the market’s expectations.
CREDIT Bonds Fall Over Interest Rate Fears Bond prices fell broadly after government reports of the unexpectedly high inflation and strong production growth raised fears that interest rates are headed up.
The Treasury’s benchmark 30-year bond dropped 27/32 point, or $8.44 per $1,000 face amount. Its yield, which rises when prices fall, jumped to 8.71% from 8.63% late Monday.
Inflation hurts the credit markets because it erodes the value of fixed-income securities such as bonds. A strong economy depresses bond prices because credit demand usually rises during strong times, prompting increases in interest rates and making bonds paying lower rates less attractive.
Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis, said the market may have overreacted to the latest economic reports, however.
He said the inflation increase stemmed partly from retailers’ early introductions of spring fashion lines. “There may be some offset to these price increases in the April and May numbers,” he said.
He also noted that auto production helped propel productivity higher in March and that the increase may not be sustained.
“I think the market is overreacting at this point,” he said.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.375%, up from 8.625% late Monday.
CURRENCY Dollar Ends Lower; Gold Prices Mixed The dollar ended lower against major foreign currencies after rising modestly overseas.
Gold prices were mixed. On the Commodity Exchange in New York, gold bullion for current delivery settled at $375.20 an ounce, unchanged from late Monday. Republic National Bank in New York quoted a late bid for gold at $375 an ounce, up 40 cents.
Dealers said trading was quiet in anticipation of the release of the February trade data Wednesday. The market has been expecting a narrower trade gap of around $7.5 billion, down from January’s $9.25 billion shortfall, dealers said.
In Tokyo, where global trading begins, the dollar rose to 159.83 Japanese yen from 159.42 yen Monday. It stood at 159.85 yen in London, and 159.685 yen in New York, up from Monday’s close of 159.30.
The dollar was mixed against the British pound. Sterling bought $1.6340 in London, down from $1.6425 late Thursday, and $1.6383 in New York, up from $1.6304 late Monday.
The European markets were closed on Friday and Monday for the Easter holiday.
Other late dollar rates in New York, compared to late Monday quotes, included: 1.6765 West German marks, down from 1.6778; 1.4895 Swiss francs, down from 1.4900; 5.6360 French francs, down from 5.6365; 1,231.75 Italian lire, down from 1,232.50, and 1.16485 Canadian dollars, down from 1.16885.
COMMODITIES Cocoa Prices Sink After Big Run-Up Cocoa futures fell sharply on New York’s Coffee, Sugar & Cocoa Exchange, reflecting what brokers called a market correction after a sharp run-up in prices in recent months.
On other markets, precious metals were mixed; grains and soybeans were mostly higher; energy futures were down, and livestock and pork futures were mostly lower.
Cocoa settled $42 to $50 lower, with the contract for delivery in May at $1,259.
Cocoa futures had been rising because of concern over political unrest in the Ivory Coast--the world’s largest cocoa producer--and lack of rain in other producing countries.
