Dow Tumbles 39.45, a New Low for Year : Wall Street: A flurry of selling follows a jump in bond yields. Traders worry about another Monday selloff.
Stocks tumbled to a new low for the year Friday after bond yields soared again, as more investors took a dim view of the near-term outlook for the economy and U.S. interest rates.
The action immediately raised concerns about Monday: A week ago, the Dow Jones industrials suffered a 53.76-point loss on Friday, which set the stage for a 105-point dive early last Monday. However, the market rallied from that deficit to close off just 21 points Monday.
On Friday, heavy selling in the bond market sparked a speedy 30-point fall in the Dow minutes after the opening bell.
The losses continued through the day, and by the close the Dow had fallen 39.45 points or 1.2% to 3,136.58--its second 1992 low of the week. For the week as a whole the Dow was off 64.03 points after losing 49.71 points the previous week.
“This has been a disastrous day,” said Phil Orlando, stock portfolio manager at Unity Management. Though New York Stock Exchange trading volume was just 178.9 million shares, losers swamped winners by a 12-to-5 ratio.
In the bond market, the yield on the Treasury’s key 30-year bond jumped to 7.53% Friday from 7.45% on Thursday, the first close above 7.5% since late July. Shorter-term yields also rocketed. The yield on one-year T-bills soared to 3.18% from 3.06% Thursday.
Gary Schlossberg, economist at Wells Fargo Bank, said the bond selloff was fueled by a report in the Financial Times that quoted an unidentified Federal Reserve official as saying he didn’t expect another U.S. interest-rate cut before the Nov. 3 presidential election.
Many Treasury bond traders had assumed a Fed cut was due because of recent disappointing economic reports. An official Fed cut would have bolstered the value of older, higher-yielding bonds. Without a cut, many traders decided there was no chance for short-term profit in bonds, so they dumped them Friday--continuing a selloff that started a week earlier.
Analysts said the bond turmoil also was partly technical: The bond market will be closed Monday for the Columbus Day holiday, so some traders may have rushed to exit rather than hold securities for three days.
The stock market, meanwhile, reacted Friday to more than just rising interest rates, analysts said. Ford Motor’s forecast of a potential fourth-quarter loss--because of weak sales--caught many investors by surprise, and underscored the economy’s lackluster recovery.
Stocks were also under pressure because of increasing political uncertainty ahead of Sunday’s presidential debate. President Bush will square off against Democrat Bill Clinton and independent challenger Ross Perot in the first of three televised debates. Unlike the bond market, the stock market will be open Columbus Day.
Unity Management’s Orlando said the outlook for the market is dismal, as investors deal with the reality of a still-weak economy without new help from lower interest rates.
“This is a rout. I think re-testing 3,100 (on the Dow) is a pretty safe bet,” he said.
Among the market highlights:
* Ford’s loss forecast pushed it down 2 3/4 to 34 7/8, while GM fell 1 to 29 1/8, and Chrysler slid 3/8 to 22 1/8.
* Industrial stocks in general led the market down, as worries about the economy rose. Dow Chemical fell 1 5/8 to 53 1/2, Parker-Hannifin lost 1 3/8 to 27 3/8, Monsanto fell 2 to 50, Deere dropped 3/4 to 39 7/8, and Great Lakes Chemical sank 2 1/4 to 66 5/8.
* Drug stocks took another pounding. Pfizer fell 1 3/8 to 70 1/2, Lilly lost 1 3/8 to 59 1/2, Merck slid 1 1/8 to 41 1/8, Alza tumbled 2 1/8 to 37 3/4, and Amgen lost 2 1/8 to 57 3/8.
Meanwhile, Conmed Corp., a maker of disposable medical products, plunged 8 3/8 to 9 1/8 after it said third-quarter earnings would be below Wall Street expectations.
* Leisure-time stocks also were big losers, after a recent rally. CBS lost 4 1/2 to 209 1/2, Hilton fell 1 5/8 to 42 3/8, Polygram dropped 1 5/8 to 26 3/8, and Disney gave up 7/8 to 34 1/4.
Caesars World hurt the group by projecting lower quarterly earnings. Its shares fell 1 7/8 to 34 1/8.
One winner was Paramount Communications, which rose 1 to 44 1/4. Lehman Bros upgraded its rating of the stock.
* Among special situations, Brilliance China closed at 20 1/8 on the NYSE, up from its initial offering price of 16. The company is the first Chinese state-owned firm to go public in the United States.
* Among Southland issues, BWIP fell 1 1/8 to 25 3/8. The fluid-controls maker said some major investors plan to sell 4.5 million of their shares in the firm via a secondary offering.
Overseas, Tokyo stocks ended lower, with the Nikkei average retreating 275.73 points to 17,059.78.
Renewed worries about low earnings prospects in Germany’s key automotive and chemical sectors dragged the Frankfurt market lower. The DAX average ended 11.46 points lower at 1,439.66.
Share prices were mixed in London, with the Financial Times 100-share average finishing 2.4 points higher at 2,541.2.
Currency
The dollar settled mostly higher in moderate foreign exchange trading, adding to impressive gains for the week.
In New York, the dollar rose to 1.487 German marks and 121.80 Japanese yen, up from Thursday’s 1.482 marks and 121.70 yen.
Analysts said a slight easing of some European interest rates, coupled with the lack of Federal Reserve action to lower rates at home, helped the dollar put in one of its best weekly performances of the year.
The dollar gained about 9 pfennigs against the German mark compared to rates a week ago and was also up substantially against the Swiss and French francs.
The U.S. currency drew strength from lower interest rates overseas. Over the last week, “four (European) countries cut official rates and three other countries eased money market rates,” said Marc Chandler, an analyst with the advisory firm IDEA.
“It all helps the dollar look more attractive,” he said.
Still, analysts were not confident that the dollar could continue its advance.
“What you need to sustain the move is an improvement in the U.S. economy,” said Earl Johnson, a vice president at Harris Trust & Savings Bank in Chicago. Instead, the economy “just appears to continue to limp along,” he said.
Commodities
Orange juice futures prices slammed to a six-year low on the New York Cotton Exchange after the government predicted the largest Florida orange harvest in 13 years.
On other commodity markets, cotton futures fell sharply; oil futures rose; precious metals advanced; grains and soybeans were mixed, and livestock and meat futures were mixed.
Frozen concentrated orange juice for November delivery plunged 6.8 cents to 96.60 cents a pound, the lowest daily settlement for near-term orange juice futures since May 16, 1986.
All other orange juice contracts fell the permitted daily limit of 5 cents. The price limit has been lifted on the November contract to allow for greater volatility as it nears expiration.
The plunge was mainly a reaction to an Agriculture Department report released after the close of trading Thursday that projected a 1992-93 Florida orange crop of 186 million 90-pound boxes, a 33% increase over last year’s 139.8 million. Florida growers haven’t picked that many oranges since the 1979-80 harvest.
Hard on the heels of the report came rumors Friday that Brazilian orange juice processors had dropped their prices by about 7% to an effective price of $1.156 a pound to preferred customers, said analyst Celeste Georgakis of Cargill Investor Services Inc.
Elsewhere, oil futures rose strongly on the New York Mercantile Exchange amid reports that Iraqi police seized an American bomb-disposal expert along a disputed Iraq-Kuwait border.
Light, sweet crude oil for November delivery rose 38 cents to $22.37 a barrel.
Precious metals rose modestly as the stock market weakened, sending investors to the traditional safe haven of gold. October gold rose 50 cents to $350.40 an ounce; December silver climbed 2.5 cents to $3.778 an ounce.
