MARKETS: Stocks Weaken; Bond Rally Rolls on : Economic News Sends Yields Plummeting; Dow Loses 19
* The bond market extended its record-shattering rally Thursday amid reports that the economy has weakened further.
* Blue-chip stocks were hurt by the economic news, but smaller issues again hit new highs, helped by falling bond yields. Health care issues also rallied.
* Gold and silver prices plunged, reflecting the limping economy.
Credit
Interest rates tumbled across the board as investors again rushed to lock in yields.
By the close, the yield on the benchmark 30-year Treasury bond sank to 6.04% from Wednesday’s 6.09%. The new yield is the lowest since the Treasury began regularly auctioning 30-year bonds in 1977.
The bond rally was egged on by news that orders received by American factories in July took their steepest tumble in more than 1 1/2 years. Disappointing retail sales reports added to the sentiment.
In addition, many traders were betting Thursday that today’s report on August employment will confirm the economy’s weakening trend--making still-lower interest rates more likely.
Earlier this week, most economists were expecting the August report to show an increase of 150,000 non-farm payroll jobs.
But many revised downward their expectations following Wednesday’s National Assn. of Purchasing Management’s economic survey, which showed a sharp employment drop at the nation’s factories last month.
For the 30-year T-bond, a break through 6% would be viewed as an extraordinary event and would help drag other interest rates lower, including mortgage rates.
Many analysts now say a slide through 6% isn’t an if, just a when.
“At this point, we’re so close it’s more a question (of) will we go to 5.75% next week?” said Alan Levenson, money market economist at UBS Securities.
Stocks
Investors dumped industrial and retail stocks in the wake of the economic reports, while smaller stocks continued to rise.
The Dow industrials sank 19.00 points to 3,626.10, hurt partly by computerized sell programs.
Losing issues outnumbered winners 10 to 9 on the New York Stock Exchange as volume grew to 259.87 million shares.
But in the NASDAQ market of mostly smaller stocks, the composite index rose 2.50 points to a record 748.65. Winners beat losers 12 to 10.
Analysts said trading was partly skewed by fears of a weaker than expected August employment report today: Some traders didn’t want to enter the long weekend with industrial issues and other stocks sensitive to the economy.
Meanwhile, the ongoing rally in NASDAQ issues apparently reflected investors’ hunt for stocks of “niche” companies that can post improved earnings even in a sluggish economy, traders said.
Among the market highlights:
* Industrial stocks losing ground included Alcoa, off 2 1/8 to 73; GM, down 1 to 45 5/8; International Paper, off 1 3/8 to 62 3/4; Caterpillar, down 1 1/4 to 80 3/4, and Deere, which gave up 2 1/2 to 67 3/4.
* Retail stocks fell after many major retailers reported weak August sales. Dayton-Hudson lost 1 1/2 to 65 1/4, Nordstrom sank 1 1/2 to 30, Wal-Mart slid 1 to 24 3/4, Gap tumbled 1 5/8 to 27 1/8, Limited fell 7/8 to 22 1/4 and TJX lost 3/4 to 27 3/4.
* On the upside, drug stocks jumped after President Clinton said mandatory price controls will not be a part of health care reform. Also, financial columnist Dan Dorfman reported that investor Warren Buffett is building a stake in Warner-Lambert.
Warner rose 2 to 71 1/4, Merck soared 1 5/8 to 33 1/8, Schering-Plough leaped 2 1/2 to 63 1/8, Pfizer gained 2 to 64 3/4 and Lilly added 1 1/8 to 48 7/8.
* Following the drugs, a rally in biotech stocks helped power the NASDAQ market’s gains. Amgen rose 1 5/8 to 39 1/8, Biogen surged 1 3/8 to 35 1/8 and Immunex added 1 to 22.
Also in the health care group, Southland HMO firm FHP International leaped 1 3/4 to 25 3/4 on a strong earnings report.
* Golf club maker Callaway Golf dropped 2 to 54 1/4 after its chairman, who is 74, said he plans to sell about 1 million shares of his stock over the next 18 months.
Overseas, Frankfurt’s DAX average rose 7.04 points to 1,925.62, while Tokyo’s Nikkei average added 29.90 points to 20,983.20. In London, the FTSE-100 index closed at 3,072.6, down 12.5 points.
Other Markets
Precious metals prices plummeted as the economy’s lackluster tone erased inflation worries.
On New York’s Comex, gold futures for current delivery closed at $363.60 an ounce, down $6.30.
Meanwhile, silver plunged 17.1 cents to $4.57. Traders said the decline began with selling by Middle Eastern interests. Later, thin pre-holiday trading conditions enabled speculators to push silver down enough to trigger computer-driven selling by investment funds.
Elsewhere, oil prices stabilized after two days of big declines. On the New York Merc, light, sweet crude oil for October ended unchanged at $17.97 a barrel.
Meanwhile, the dollar rose against the Japanese yen but was mixed against European currencies as investors piled into the German mark, convinced that German interest rates will remain high and U.S. rates low.
The dollar closed at 105.90 Japanese yen, up from 105.30 on Wednesday. But it fell to 1.643 German marks from Wednesday’s 1.660.
