CLINTON’S ECONOMIC PACKAGE : Stocks Take Wild Ride; Dow Off 10 : Markets: Traders take deficit-cutting plan seriously, dropping yield on 30-year Treasury bond to 7.02%.
Stock prices gyrated wildly and the bond market continued its powerful rally on Thursday as investors began sorting out the winners and losers in President Clinton’s economic program.
The Dow Jones industrial average closed off 10 points to 3,302.19 after a roller-coaster session that was heavily influenced by index and options trading in Chicago.
After surging 36 points in the mornig, the Dow plunged 82 points before rocketing back into the plus column. Prices faded again in the final moments of trading.
Bond prices, on the other hand, were strong throughout the day in a sign that investors were taking the deficit-cutting components of the President’s program seriously.
The interest rate on 30-year Treasury bonds--which moves down as the price of the bonds rises--sank to 7.02% from 7.11% amid predictions that it would soon slice through the psychologically important 7% level.
Short-term interest rates also fell. Lower interest rates are a key component of Clinton’s economic program and could fuel recoveries in real estate and business investment.
“It looks like Clinton has the Fed in his back pocket,” commented Robert Kahan, chief trader at Montgomery Securities in San Francisco, noting that Federal Reserve Chairman Alan Greenspan sat beside First Lady Hillary Rodham Clinton during the President’s address to Congress on Wednesday night. “That’s bullish for stocks and bonds.”
“The bond crowd saw a deficit-reduction plan it believed in,” added Larry Wachtel, market analyst at Prudential Securities Inc. Another factor leading to the bond market’s rally, he said, was the growing possibility that the Treasury will do more of its borrowing on the short-term market, where rates are lower, to reduce interest expenses and nudge 30-year bond rates down further.
“I think we’re going down to 6.5% or lower,” added Kahan. “That will light a fire under the interest-sensitive stocks, and they’ll carry the rest of the market up with them.”
Stock market watchers groped to explain Thursday’s see-saw session.
“I’m having trouble fathoming the whole thing,” said Jeffrey Miller, managing partner of Miller Tabak Hirsch, a New York investment concern.
“A lot of the stock swings were based on technical factors,” Miller added. “It’s too simplistic to say that investors embraced the President’s program, then changed their minds, then changed them again.”
Others blamed computerized program trading for Thursday’s volatility. With the market up 36 points, “people said, ‘Maybe we’re a little bit euphoric here.’ Then (computer-triggered) sell programs kicked in,” said Edward Collins, chief block trader at Daiwa Securities America.
Advancing stocks on the New York Stock Exchange outpaced decliners 1,025 to 867, while 564 issues were unchanged. New York exchange volume climbed to 311.18 million from 302.21 million shares traded Wednesday.
One interest-sensitive stock pummeled by the Clinton economic program Thursday was the Student Loan Marketing Assn., known informally as Sallie Mae, which plunged 9 3/8 to 47 1/4. Sallie Mae, which purchases and services student loans, is expected to be hurt by the Clinton proposal for the government to lend money to students directly.
Technology stocks turned in solid performances as traders took heart in the President’s plans to nurture small companies--and, perhaps, in Apple Computer Chief Executive John Sculley’s seating at the First Lady’s other side. Intel gained 1 1/2 to finish at 110; Microsoft rose 1 3/8 to finish at 81 5/8, and Hewlett-Packard climbed 1 3/8 to close at 73 5/8.
Airline stocks fell again as the President formally proposed an energy tax that would add to the airlines’ fuel bills. Delta Air Lines dropped 1 3/4 to 46 7/8; UAL, parent of United Airlines, fell 3 1/2 to 115 3/4.
Eugene Peroni, a technical analyst at Janney Montgomery Scott Inc. in Philadelphia, said the market’s sharp bounce from its low Thursday--a 46-point drop--could bode well for the future.
“At least we seem to be establishing some sort of short-term trading range,” he said.
Other Markets
The dollar settled mixed after advancing in foreign markets as traders worldwide assessed President Clinton’s sweeping plan for economic reform.
The dollar rallied in overseas trading in an early, technical response to Clinton’s economic plans. When activity shifted to domestic markets, trading started with a jolt after the Dow shot up 35 points and long-term interest rates fell.
Higher taxes levied on both corporations and consumers could cut back on spending overall. And Clinton’s pledge to work toward lower interest rates also was negative for the dollar.
Low interest rates make dollar-denominated securities less valuable to investors, thereby decreasing their need for the U.S. currency.
In New York, the dollar settled at 119.15 Japanese yen, down from 119.65 yen Wednesday, while it rose to 1.631 German marks, up from 1.625. The British pound rose to $1.448 from $1.446.
Meanwhile, in the commodities markets, gold fell 30 cents to $330.70 an ounce on the New York Commodity Exchange, .
Light, sweet crude oil settled at $19.42 per barrel, up 9 cents, at the New York Mercantile Exchange.
Market Roundup, D6
MAIN STORY: A1
