Jobless Report Helps Drag Dow Down 21.34 : Market Overview
* Stocks closed moderately lower as investors returned from the holiday weekend to focus on the depressed economy. Another drop in the dollar also hurt. The Dow Jones industrial average fell 21.34 points to 3,260.59.
* Interest rates continued their latest slide as investors sought to lock in current bond yields. The 30-year Treasury bond yield fell below 7.25% and now is nearing its low of the 1980s.
* The dollar fell again to near-record lows against the German mark as traders grew jittery about currency troubles in Scandinavia.
Stocks
Last Friday’s dismal August employment report, showing a loss of 83,000 jobs in the month, weighed heavy on investors as trading resumed following the long weekend.
“The (employment) number was a lot worse than anyone expected, and it raises the specter of another wave of (corporate) earnings revisions,” said Mark Tincher, analyst at Chase Global Private Bank.
Investors fear that a slowing economy will mean lower corporate earnings ahead, inevitably leading to lower stock prices.
The new wave of pessimism was reflected in the losers-to-winners figures among New York Stock Exchange issues Tuesday: Declining stocks swamped gainers 1,111 to 585.
However, volume remained low-key at 161.4 million shares, compared to 124.4 million Friday.
Though many analysts note that investors have shown no urgency to sell in recent weeks--despite bad economic news--there are growing worries that some unforeseen shock could quickly send the market into a tailspin.
“It seems everybody is in a bearish mood,” said trader Robert O’Toole at Lehman Bros.
Among Tuesday’s highlights:
* Industrial and financial stocks bore the brunt of the selling, as investors continued to exit companies perceived to be most vulnerable to another recession.
Among industrials, GM fell 1 1/8 to 34, International Paper lost 1 3/4 to 62 3/8, Caterpillardropped 1 1/2 to 47 3/4, Owens-Corning gave up 1 1/2 to 31 3/4, and Illinois Tool Works sank 1 3/8 to 62 3/4.
In the banking sector, Citicorp fell 7/8 to 15 1/2, First Chicago tumbled 1 5/8 to 29 7/8, Wells Fargo lost 1 7/8 to 66 5/8, NationsBank eased 1 1/8 to 43, and Banc One slid 3/4 to 43.
* Also among financial stocks, Federal Home Loan Mortgage plunged 1 5/8 to 41 1/4. A Salomon Bros. analyst removed the mortgage financier from its recommended list. Within the same group, Federal National Mortgage fell 1 3/4 to 64 3/4.
* Real Estate Investment Trust of California dropped 1 5/8 to 14 3/8. After the market closedlast Friday, the trust cut its quarterly dividend 10%, citing falling rents on its California properties. Also the trust’s president resigned to “pursue other interests.”
Overseas, London stocks quickly reversed an early gain and closed sharply lower as the British pound plunged against the German mark. The Financial Times 100 index ended down 34.5 points, or 1.5%, at 2,337.7.
In Frankfurt, the DAX index ended 3.92 points higher at 1,544.55.
In Tokyo, the Nikkei average slid 157.76 points to 18,282.42.
Credit
Interest rates continued to drop across the board.
The benchmark 30-year Treasury bond, which rose nearly a point Friday, added another three-quarters of a point, or $7.50 per $1,000.
That pushed its yield from 7.28% Friday to 7.23%, its lowest level since Aug. 15, 1986. The bond is quickly closing in on its 1980s low of 7.11%.
Traders said buying emerged in the afternoon after the market failed to give up the strong gains it scored Friday, when the Federal Reserve eased interest rates further on the heels of the weak August employment report.
In the bond market Tuesday, “there were no sellers, and a few buyers knocked it up and up,” said Astrid Adolfson, economist at MCM Moneywatch.
Investors are locking in yields, fearing that a weak economy will mean much lower rates ahead.
The federal funds rate, the interest on overnight loans between banks, fell to 3.13% from 3.31% Friday. The Fed on Friday indicated that its new target rate for fed funds is 3%, down from a previous target of 3.25%.
Currency
Chaos in the currency markets moved north Tuesday, as Finland and Sweden grappled with troubles brought on by the rise of the German mark.
The stumbling dollar, caught in the cross-fire, fell again in Europe as traders grew jittery less than a week after Britain and Italy made dramatic attempts to boost the pound and the lira against the mark.
Traders said the dollar was mostly overlooked as buyers rushed into German marks, fleeing from Scandinavian currencies.
Leading the flight to marks was the announcement by Finland that its currency’s exchange rate would float freely against all currencies.
Finland appeared to be detaching itself from the recent turmoil surrounding the European Monetary System. Finland is not a member of the EMS or the European Community, but in June last year it linked its currency to the EC as a step toward membership.
The news triggered heavy selling of the Finnish markka and other Scandinavian currencies in favor of the mark. The markka closed 17% to 18% lower against major currencies.
Although Scandinavian currencies are not among the major currencies watched closely by traders, their problems were enough to send shudders through markets elsewhere.
In New York, the dollar closed at 122.85 yen, down from 123.15 on Friday. It closed at 1.395 German marks, down from 1.402 Friday.
Commodities
The prospect of subsidized U.S. pork sales to Russia and other former Soviet republics sent hog futures prices higher at the Chicago Mercantile Exchange.
The strong performance by hog futures at the Chicago Mercantile Exchange overcame a weak trend on the cash market.
“It’s not so much that there were willing buyers in futures, it’s just that we didn’t have people who were willing to sell,” said Chuck Levitt, analyst with Shearson Lehman Bros.
Speculators and hedgers in the meat trade were jittery about selling when an announcement could come any day that the United States is expanding its export credit guarantee package by about $1 billion to Russia.
Elsewhere, energy futures mostly advanced on the New York Merc, as traders continued to bet on higher fuel prices this winter.
Light, sweet crude oil for October delivery was 19 cents higher at $21.96 a barrel.
But October natural gas was 10.3 cents lower at $2.044 per 1,000 cubic feet, falling back from its recent surge.
On the Comex in New York, precious metals futures advanced. Gold for October gained 90 cents to $342.50 an ounce; September silver was 0.8 cent higher at $3.71.
