Bond Yields Plummet, but Most Stocks Suffer
Market Overview
Highlights of Thursday’s market activity, compiled from Times staff and wire reports:
* Long-term Treasury bond yields fell below 7.70% to their lowest levels in four years after the government reported a sharp jump in unemployment claims.
* The dollar tumbled against the German mark after the German central bank raised interest rates.
* The stock market put on a brave face despite the economic news, as the Dow Jones industrials gained 6.27 points to 2,914.36. But the broader market fell.
Stocks
The Labor Department dropped another bomb on any remaining bullish forecasts for the economy: New applications for unemployment insurance jumped 79,000 in the week ended Dec. 7.
The figure far exceeded the amount expected by most economists. As a result, interest rates plummeted in the credit markets, on the belief that there will be little demand for money soon in the weakening economy.
The Dow index, however, failed to respond decisively either to the good news of lower interest rates or the bad news of a deeper economic slump.
Analysts said the market’s indecision was largely a seasonal problem: With little time left in the year, many investors are reluctant to be big buyers or big sellers.
In addition, key stock index options and futures contracts expire today. Because of the volatility those expirations can cause, some investors remain sidelined.
Even so, in the broader market the tone was unmistakably negative, analysts said, and that trend may be ominous. Losers outnumbered gainers by about 3 to 2 on the New York Stock Exchange. Big Board volume was active at 199.33 million shares, up slightly from Wednesday’s 196.46 million.
Smaller stocks, the stars this year, dropped sharply on the economic news. The NASDAQ composite index lost nearly 1%.
Among the market highlights:
* Retail stocks were slammed for a second day as concerns mounted about Christmas sales in the slumping economy. Electronics retailer Best Buy plunged 7 1/4 to 14. It said December same-store sales were lagging 1991 levels. Another electronics retailer, Good Guys, dropped 3 1/4 to 20 1/4.
Among other retailers, J. C. Penney fell 2 1/8 to 47 1/4, Limited dropped 2 3/8 to 25, Price Co. lost 4 1/2 to 44, and Dayton Hudson slid 2 1/8 to 57 3/4.
* Health-care issues were active. Los Angeles-based Diagnostic Products, a maker of kits used in hospitals to detect cancer, thyroid disease, allergies and other illnesses, plunged 14 1/2 to 36 3/8 after the company said results for 1991 could be 5% to 7% below analysts’ expectations. The company cited slower sales of new products and disappointing overseas results.
Meanwhile, biotech firm Genentech fell 1 3/4 to 29 3/4 after it said 1992 sales were expected to be flat with 1991. Other biotech stocks also weakened: Amgen lost 1 to 58 1/4, Immunex eased 1 to 51 1/2, and Immune Response fell 1 1/2 to 35 3/4.
* General Motors, which announced sweeping cutbacks Wednesday in its production and work force, lost 7/8 to 26 7/8, a new 1991 low. Ford dropped 1/2 to 24 3/8.
Overseas, futures-linked selling and economic concerns pushed Tokyo’s Nikkei average below 22,000. It closed at 21,991.19 points, down 638.71 points, or 2.8%.
In Frankfurt, shares dipped in a thin, jittery session that closed before the German Bundesbank announced its surprise hike in interest rates. The DAX index lost 11.98 points to 1,561.77.
In London, the decision by Germany to raise interest rates knocked sentiment further. The Financial Times 100-share average ended 22 points lower at 2,391.6.
Credit
Bond yields plunged on new signs of a weak economy. The yield on the benchmark 30-year Treasury bonds dropped to 7.65% from 7.75% Wednesday. It was the lowest rate in more than four years.
The market cheered a surge in unemployment benefits requests, believing that the news puts further pressure on the Federal Reserve to lower interest rates as an economic stimulus.
William Sullivan, analyst at Dean Witter, said new buying came in after the 30-year bond’s yield cracked 7.75%. “This is a significant breakout,” he said.
The last time long-term yields were this low: March 27, 1987, when the 30-year bond paid 7.64%.
Analysts had expected the Fed to lower rates this week. Now, the central bank’s decision can come no later than the first week of the new year, many experts say.
The federal funds rate, the interest banks charge each other on overnight loans, stood at 4.50%, up from 4.25% Wednesday.
Currency
The dollar tumbled after Germany’s central bank raised key interest rates to fight inflation.
The dollar tumbled more than two pfennigs, falling to 1.558 marks in New York from 1.572 Wednesday. Analysts said the surprise was more in the magnitude of the rate increase than that it occurred.
Rising German rates will make bonds of that nation more attractive, thus drawing capital away from U.S. and other bonds.
The dollar also fell to 128.15 Japanese yen from 128.35.
Commodities
Heating oil fell for a fourth straight day on the New York Merc amid forecasts for an unusually warm Christmas week in the eastern United States.
Light, sweet crude oil for February delivery dropped 21 cents to $19.12 a barrel, and January heating oil plunged 1.26 cents to 53.46 cents a gallon.
Meanwhile, platinum futures rose slightly on the New York Merc, ending a two-day drop of more than $14 an ounce. January platinum rose $1 to $343.90 an ounce. On New York’s Comex, December gold fell $1.80 to $357.20 an ounce; December silver fell 0.3 cent to $3.83.
