Dow Slips 8.95; Bonds, Dollar Lose Ground : Market Overview
* Long-term Treasury bond prices were pounded in heavy trading, reflecting investors’ disdain for low yields and fear of a new, bloated federal budget.
The yield on the Treasury’s key 30-year bond shot up to 7.66% from 7.57% Wednesday.
* Stocks closed mixed in the most active trading since October, 1989, as investors took profits on some issues but rolled them back into others expected to benefit from an economic recovery.
* The dollar ended lower in jittery trading, capping a week of sharp gains.
Stocks
Investors continued to take profits in last year’s favorite stocks but plowed the money back into issues expected to lead in 1992.
The Dow Jones average, up 72.90 points the previous two sessions, dropped 8.95 points to 3,249.55.
However, advancing issues slightly outnumbered declines on the New York Stock Exchange.
Big Board volume came to 336.24 million shares, up from 312.81 million Wednesday and the eighth-largest total on record. The last time the NYSE had a busier day was Oct. 16, 1989, when 416.29 million shares were traded.
“The tremendous switch from defensive growth into cyclicals requires double the volume,” said Jack Solomon, technical analyst at Bear Stearns. “People are selling to create money to put into cyclicals.”
The surge in trading activity also reflected a move from bonds into stocks, traders said.
“The perception of an economic recovery has been elevated considerably,” said Robert Walberg, analyst at MMS International. “Going back to the day the Federal Reserve cut the discount rate, people have pronounced the recession’s end.”
But, he added, “I think the market’s got to prove it belongs at these levels.”
On the economic front, the Labor Department said consumer prices rose 0.3% in December, leaving inflation in 1991 at its lowest level in five years.
Among the market highlights:
* Health care stocks continued to reel as investors sold last year’s favorite issues. Schering-Plough fell 3 1/8 to 61 5/8, Merck dropped 2 to 154 1/8, Johnson & Johnson skidded 3 3/4 to 104 5/8, Pfizer lost 3 to 76 3/8, Amgen plunged 4 3/8 to 68 5/8, and U.S. Surgical slid 8 to 123 1/2.
* Cytogen bucked the plunge in the biotech group, gaining 3 3/8 to 31 1/2. An FDA panel unanimously approved its cancer imaging drug, Oncoscint.
* Other favorite growth stocks, food stocks, were also pummeled. Philip Morris slid 1 7/8 to 76 5/8, General Mills lost 2 to 67 5/8, and Coca-Cola fell 3 to 74.
* As growth issues tumbled, money again poured into industrial issues. Dow Chemical jumped 4 1/8 to 57, Phelps Dodge rose 4 1/2 to 73, Ingersoll-Rand gained 3 1/4 to 58 3/8, GM rose 2 1/4 to 34 3/8, and Eaton soared 4 1/8 to 70.
* Many computer stocks followed industrial issues higher. Intel rocketed 5 to 61, AST Research jumped 3 3/8 to 23 1/4, and Motorola rose 1 5/8 to 79 1/4. But Digital Equipment sank 4 1/4 to 54 3/4 on a disappointing profit report.
* Reebok slumped 3 1/4 to 30, but after the close the firm said it will report record fourth-quarter results.
Overseas, Tokyo stocks closed weaker in a choppy session. The 225-share Nikkei average slid 162.94 points to 21,612.19.
London stocks ended a seesaw session higher. The Financial Times 100-share average rose 4.5 points to 2,541.6. In Frankfurt, profit taking sent the DAX average down 1.16 points to 1,666.34.
Credit
The price of the 30-year bond, which moves inversely to the yield, fell 1 1/8 point, or $11.25 per face amount.
“The bond market has gone from feast to famine in the last couple weeks or so,” said Robert Brusca, chief economist for Nikko Securities Co. International.
Brusca and other traders said speculation that the economy is heading for a recovery--a key factor in the strong performance of the stock market--has weighed on the bond market.
Another element in the selloff has been the emerging budget debate in Washington, he said.
Elias Bikhazi, a vice president of Security Pacific Bank in Los Angeles, said traders are worried about a February announcement on refunding the federal budget.
“I don’t think the market has a whole lot of positives to look forward to in the next few days or the next couple of weeks,” he said.
The federal funds rate, the interest on overnight loans between banks, was 3.938%, unchanged from Wednesday.
Currency
The dollar moved lower in a volatile session dominated by selling of the German mark.
Analysts said the dollar, which had rallied the past week, fell victim to profit taking and fears that central banks might intervene to force the U.S. currency lower.
Traders theorized that the drop might ease pressure on the Federal Reserve to nudge interest rates down to stimulate the economy. The dollar, like all currencies, draws support from stable or higher yields.
The dollar fell to 1.617 German marks in New York from 1.625 Wednesday and to 128.22 Japanese yen from 128.66. The British pound closed at $1.763, up from $1.752.
Commodities
What may be a newfound faith in the U.S. economy sent the price of silver futures and other industrial metals sharply higher.
Advances were seen across a full range of industrial metals--copper, platinum, aluminum and nickel, as well as silver.
On other markets, orange juice futures plunged, livestock and meat were higher, petroleum was mostly higher, and grains were mostly lower.
Silver futures on the Commodity Exchange in New York led the rally in metals prices, continuing a surge that began Wednesday.
January silver was 18.1 cents higher at $4.318 an ounce. Gold for delivery in February advanced $2.30 to $357 an ounce.
In the energy market, gasoline and heating oil futures surged on the New York Mercantile Exchange, while crude oil lost most of its gains. Light, sweet crude for delivery in February was 6 cents higher at $18.91 a barrel. February heating oil was up 0.82 cents to 54.87 cents a gallon.
Market roundup, D6
