STOCKS : Dow Index Falls 11.18 as Bond Prices Rally
Bond prices rose sharply Friday on hopes of lower interest rates, pushing yields to four-year lows, while blue chip stocks slumped.
The bellwether 30-year Treasury bond rose nearly 23/32 of a point, up $7.19 per $1,000 face amount, to yield 7.82%.
The yield, which moves in the opposite direction from the bond’s price, was down from 7.88% on Thursday and was the lowest since a 7.81% yield on March 31, 1987.
Bond dealers said the market rallied on heightened hopes for a Federal Reserve cut in official interest rates. Investors were encouraged when Fed Chairman Alan Greenspan and President Bush met to discuss the economy Friday.
“Why is the market rallying? Why not? We have got inflation under control, the economy is still very weak, people feel the Fed might ease once more,” one dealer said.
On Wall Street, the Dow Jones industrial average was down 11.18 points to close at 3,006.04. Advances barely led declines on the New York Stock Exchange.
Blue chips fell because of computer-driven selling, but investors also were wary about next month’s third-quarter earnings reports.
“The stock market is getting a little impatient here,” said Jeffrey Kaminsky of Mabon Securities. “The economic data show a significant drag on the economy and there are real reservations about earnings.”
Big Board volume came to an estimated 160.66 million shares against Thursday’s 160.30 million.
Stocks took an early cue from a rally in bonds, but failed to sustain the gains.
While the stock market showed little overall reaction ahead of Bush’s speech Friday night, the expectations that more defense cuts would be announced pressured some defense company shares.
Among the market highlights:
* Northrop Corp. lost 1 to 23 1/2. Its B-2 Stealth bomber has already come under scrutiny. Raytheon Co. slipped 7/8 to 78 5/8, McDonnell Douglas Corp. fell 1/8 to 61 7/8, and General Dynamics shed 2 1/2 to 46 1/4.
* Datapoint, which reported a fourth-quarter profit of 47 cents a share compared to a loss of $5.37 a share in the year-ago period, gained 2 3/4 to 4 1/8.
* Losers among the blue chips included IBM, down 2 5/8 at 102 1/4; International Paper, down 3/4 at 68 5/8; Merck, down 1 1/8 at 128 3/4; American Telephone & Telegraph, down 1/2 at 37 1/2, and Aluminum Co. of America, down 1/2 at 63 3/4.
* Scimed Life Systems fell 6 1/2 to 50 3/4 in the over-the-counter market. The stock plunged 29 3/4 points Thursday after the company said it is considering taking a catheter product that is one of its biggest sellers off the market because of patent litigation.
Overseas, a warning from the Bundesbank that German inflation has to be sharply reduced pushed Frankfurt’s 30-share DAX average down 11.85 points to 1,608.14.
Japanese stocks closed virtually unchanged. Tokyo’s 225-share Nikkei average was up just 1.39 points to 23,969.47 but down 776.73 for the week.
Shares closed up, but off the day’s highs in London. The Financial Times 100-share average gained 3.4 points to 2,599.0.
Credit
The Treasury bond market was boosted by hopes for another interest rate cut and expectations that President Bush would announce more defense spending cuts in his televised speech Friday night.
The price of the Treasury’s bellwether 30-year bond was up 23/32 point, or about $7.19 per $1,000 in face amount. Its yield, which falls when the price rises, fell to 7.82% from 7.88% late Thursday.
A White House meeting between Bush and Federal Reserve Chairman Alan Greenspan also generated intense speculation that Bush pressed the central bank to lower interest rates to jump-start the faltering recovery.
The Fed, which eased rates earlier this month, was widely expected to move again in the next two weeks. Lower interest rates increase the value of existing fixed-income securities.
The federal funds rate, the interest on overnight loans between banks, was quoted at 5%, down from late Thursday’s 5.313%.
Currency
The dollar fell amid continued trader pessimism about the direction of interest rates.
The dollar, like other currencies, draws support from higher interest rates.
It closed in New York at 1.676 German marks, down from 1.682 marks Thursday. The dollar also lost ground against the Japanese yen, falling to 133.15 yen in New York from 133.95 yen on Thursday.
Commodities
Wheat futures prices made strong gains amid talk of fresh Soviet demand. Corn futures edged higher while soybeans retreated.
On other commodity markets, livestock and meat futures were mixed; energy futures rose, and precious metals retreated.
Wheat for delivery in December settled 5.75 cents higher on the Chicago Board of Trade at $3.315 a bushel; December corn rose 0.75 cent to $2.4625 a bushel; December oats rose 0.25 cent to $1.27 a bushel; November soybeans fell 2.75 cents to $5.8525 a bushel.
October gold dropped $1.70 to $349.10 an ounce; December silver dropped 3.5 cents to $4.12 an ounce.
