FINANCIAL MARKETS : STOCKS : Dow Drops 18 on Word of Higher Prices
Stock prices tumbled Wednesday in a broad selloff, taking their cue from a plunge in the bond market caused by news that June consumer prices jumped an unexpectedly strong 0.5%.
The Dow Jones index of 30 industrials, which had closed Monday and Tuesday just fractionally below 3,000, dropped 18.07 points to 2,981.68.
Most broader indexes suffered bigger losses. On the New York Stock Exchange, declining issues outnumbered advances by more than 2 to 1, with 483 up, 1,030 down and 522 unchanged. But volume slowed to 168.76 million shares on the Big Board, down from Tuesday’s 176.79 million.
Economists had forecast a rise of 0.3% in consumer prices. The higher figure sent bond yields soaring, despite positive comments from Federal Reserve Board Chairman Alan Greenspan. Testifying on Capitol Hill, Greenspan said despite the bad June inflation figure, the Fed would consider further interest rate cuts to avert a credit crunch.
“Greenspan hedged his comments too much and it was confusing. The stock market did not look favorably on what he said,” said analyst Susan Hammargren of Geldermann Inc.
“The inflation data suggest inflation is still a problem,” said Hugh Johnson, chief investment officer at First Albany Corp. “The market concluded there is no room for the Fed to take any more steps toward lower interest rates.”
Analysts also said the Dow 30 index’s inability to hurdle the 3,000 barrier at the close took some steam out of the market. “We hit the wall at 3,000 twice and I think that’s raised a lot of skepticism on whether we can indeed get through 3,000,” Johnson said.
On both Monday and Tuesday, the Dow closed at a record high of 2,999.75.
Still, analysts also noted that the market has been overdue for profit taking. Through Monday, the Dow had run up almost nonstop from 2,880 in early July.
Market highlights:
* Many of the growth stocks that have led the market higher for months were hit by profit taking. Losers included Wal-Mart, down 1 3/4 to 33 3/4; Toys R Us, 1 1/4 to 32 3/4; Home Depot, 2 to 39 5/8; Pepsico, 1 1/8 to 81 7/8, and Gap, 1 5/8 to 61 1/4.
* Some growth issues gained, however, suggesting some investors were simply rotating money within the group. Showbiz Pizza Time jumped 2 1/2 to 26 1/2 on a stronger-than-expected earnings report. Software firm Cadence Design also rose on a strong earnings report, up 1 1/2 to 27 5/8.
* Airline stocks were big losers on fears of weakening earnings, as capacity rises next year with the addition of new planes. AMR fell 2 7/8 to 61 5/8 and Delta lost 2 3/8 to 73.
* Losers on disappointing earnings reports included home builder Standard Pacific, off 1 3/8 to 11 3/4; Reebok, 5/8 to 15 3/4, and Lotus Development, 2 7/8 to 31 1/4.
* United Telecom extended Tuesday’s steep drop after reporting lower-than-anticipated earnings. It fell 2 1/4 to 27 1/4.
* Eli Lilly fell 3 7/8 to 85 on concerns over its drug Prozac. A patient sued the company for $150 million, claiming that the drug caused her to attempt suicide.
* Agoura Hills-based American Ecology, a waste-disposal firm, rocketed 2 3/4 to 8 1/4 on volume of 135,400 shares. The company reported a dramatic turnaround in profits in the latest quarter, earning 57 cents a share.
In Tokyo, stocks closed lower, breaking a five-day winning streak. The 225-share Nikkei index slipped 124.17 points to 33,048.11.
In London, the Financial Times 100-share index fell 13 points to close at 2,402.0.
In Frankfurt, West Gernamy, stocks surged in lively trading as foreign investors streamed into the market. The 30-share DAX index rose 37.04 points at 1,966.04.
CREDIT
Greenspan Speech Fails to Lift Bonds Bond prices tumbled after the government released the consumer price report for June.
The Treasury’s benchmark 30-year bond lost 13/16 point, or about $8.12 per $1,000 face amount. Its yield, which moves in the opposite direction from price, jumped to 8.54% from 8.45% late Tuesday.
The markets got off to a rocky start when the government said the CPI rose 0.5% in June, above expectations. Bond investors fear inflation because it erodes the value of fixed-income securities.
James Marshall, a government securities trader at Clayton Brown in Chicago, said the market took only moderate comfort in Federal Reserve Chairman Alan Greenspan’s comments that the Fed would likely continue to ease credit if need be to help keep the country out of a recession.
Economists questioned several components of Greenspan’s testimony before a congressional panel, especially remarks that the likelihood of a recession “seems low” and that the economy was not experiencing a full-scale credit crunch. Those comments seemed to undermine the rationale for the Fed to further ease credit.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 7.938% late Wednesday, down from 8% Tuesday.
CURRENCY
Dollar Ends Higher in Volatile Session The dollar ended slightly higher against most foreign currencies after a volatile trading session marked by conflicting views about the direction of interest rates.
Gold fell. On the Commodity Exchange in New York, gold bullion for current delivery settled at $361.60 an ounce, down 40 cents from Tuesday.
In Tokyo, where trading ends before Europe’s business day begins, the dollar fell to a closing 147.25 Japanese yen from 148.20 yen at Tuesday’s close. It then traded at 147.45 yen in London, and at 147.77 in New York.
COMMODITIES
Coffee Futures Rise on Hot, Cold News Snow in Chile and a volcano in Guatemala helped boost coffee futures prices on New York’s Coffee, Sugar & Cocoa Exchange.
On other commodity markets, near-term gasoline futures plunged while other energy futures were mixed. Most pork futures fell sharply.
Raw coffee futures settled 1.5 to 1.7 cents higher, with the contract for delivery in September up 1.7 cents at 87.95 cents a pound.
Coffee futures rose from the opening bell amid reports of volcanic activity in Guatemela that was initially believed to have caused severe damage to that nation’s coffee crop.
Subsequent reports contained lower damage estimates. Esther Eskanasy, analyst with Cargill Investor Services, said there could have been no crop damage because Guatemalan growers harvested all their coffee earlier this year.
Eskanasy said coffee futures also were supported by technical buy signals and by news that it had snowed in Santiago, Chile, for the first time in many years.
