FINANCIAL MARKETS : Stocks Shake Off Fed Jitters; Yields Rise
Market Overview
* The stock market bounced back from morning inflation jitters inspired by Federal Reserve Board Chairman Alan Greenspan and closed mixed Tuesday.
* Greenspan reiterated that the Fed stands ready to raise interest rates to dampen inflationary pressures, sending long-term interest rates modestly higher.
Stocks
The Dow Jones industrial average of 30 stocks lost 24 points after Greenspan said the central bank is ready to boost interest rates at any sign of higher inflation.
However, the blue-chip index rallied in the afternoon, thanks in part to strong drug, auto and airline stocks. It finished up 9.50 points at 3,544.78 on Big Board volume of 277.42 million shares, compared to Monday’s 216.37 million.
New York.
“The big question now is whether Wall Street has been too optimistic about earnings prospects for the rest of the year and 1994,” he said. “It’s a time for reflection and reassessment here, and I think you’ll see that in this choppy, erratic market.”
Later in the day, however, investors began focusing on other positive news.
Among the market highlights:
* Drugs stocks, which have declined on concern about upcoming health care reforms, got a boost from industry leader Merck, which reported higher earnings from operations. Merck was up 1 1/8 to 33 1/4. Eli Lilly gained 2 1/8 to 48 1/2 after a Food and Drug Administration advisory committee said its Prozac drug is effective in treating obsessive-compulsive disorder.
* Airline stocks were buoyed by hopes of government tax breaks to help bring the beleaguered industry out of the red. AMR, parent of American Airlines, rose 2 3/8 to 63 3/8; UAL Corp., parent of United Airlines, was up 4 3/4 to 138, and Delta was up 1 3/4 to 50 1/4.
* The Big Three car makers, which are expected to post strong profits, all rose. Chrysler was up 1 5/8 to 46, Ford was up 1 3/4 to 53 1/4 and General Motors gained 1 1/8 to 48 7/8.
* Investors looking for bargains snapped up technology stocks, which have been lower due to price wars and resulting poor earnings. On the NASDAQ market, Apple Computer was up 1 1/4 to 26 7/8, Intel gained 1 1/8 to 52 and Microsoft was up 1 3/4 to 80 1/2.
* Other stocks were boosted by solid earnings reports. Sears gained 4 1/8 to close at 50 1/8. McDonnell Douglas was up 5 5/8 to 80 7/8.
Stocks were mixed in overseas trading. Tokyo’s 225-share average slid 112.92 points to close at 20,038.00. On the Frankfurt bourse, the 30-share DAX average finished at 1,839.04, up 3.41. London’s Financial Times 100-share average finished 19 points off at 2,823.9.
Credit
Treasury bond yields rose, pushing prices lower in early trading following Greenspan’s appearance before the House panel. Higher interest rates can erode the value of bonds and other fixed-income investments.
The 30-year bond yield rose to 6.55% from 6.54% on Monday. Its price, which moves in the opposite direction, fell 3/16 point, or $1.88 per $1,000 in face value.
The federal funds rate, the interest on overnight loans between banks, fell to 3% from 3.125% on Monday.
Meanwhile, utilities and other companies rushed out $2 billion in new bonds, some testing the waters for debt with maturities well above the conventional 30-year ceiling.
For example, the Tennessee Valley Authority said it will sell $2 billion in new bonds, including $500 million in debt that doesn’t mature for 50 years. Walt Disney Co. said it is considering a 100-year maturity.
Other Markets
The dollar fell against key foreign currencies after getting a brief lift from Greenspan’s suggestion that U.S. interest rates will rise if inflation begins to take off.
The dollar, which had traded at 1.7063 German marks at Monday’s close, rose to 1.7150 marks after Greenspan’s remarks. But it drifted down to 1.70 in late trading.
Normally, an indication of higher interest rates would spur investment in a currency. But currency brokers said investors did not regard Greenspan’s warnings as that dire.
Investors may also have bought German marks due to a rumor in the markets that Germany has exceeded its targets for growth in the money supply, traders said. Rapid money growth produces inflation.
In New York, the dollar fell to 108.15 Japanese yen from 108.46 yen a day earlier.
The British pound fetched $1.511, up from the $1.499 it commanded a day earlier.
Meanwhile, in commodities trading, oil futures dropped, wiping out Monday’s gains, amid perceptions that the Organization of Petroleum Exporting Countries will be unable to boost crude prices.
On the New York Mercantile Exchange, light, sweet crude oil for August delivery dropped 70 cents to $17 a barrel.
Gold prices fell overseas but were mixed domestically. At the Newe York Commodities Exchange, gold for current delivery was traded at $391.90, down 10 cents from Monday. Silver for current delivery eased on the New York Commodity Exchange to $5.040 an ounce, down from $5.042.
Market Roundup, D6
