Rising Interest Rates Push Stocks Down
Market Overview
Most major stock market indicators fell Monday, depressed by rising interest rates and selling in bank issues, but the Dow Jones industrial average ended higher, propelled by economy-sensitive stocks.
* Long-term Treasury bond yields soared as investors sold bonds to lock in profits from a rally that has sent 30-year bond prices soaring in the last week. Gold prices surged.
Stocks
Rising interest rates helped push down the stocks of financial institutions, which have benefited significantly from low yields. In addition, the move by Morgan Guaranty Trust to cut its prime lending rate to 5.5% from 6% contributed to the selloff.
Stocks and bonds have often moved in tandem recently because the lower yields that come with higher bond prices make stocks more attractive.
The Dow rose 12.58 points to 3,642.31, about 10 points shy of its all-time high, on Big Board volume of 329.58 million shares. Declining issues narrowly outnumbered advances on the New York Stock Exchange.
The Nasdaq average was off 4.54 points at 782.88.
Among the market highlights:
* Citicorp headed the NYSE most-active list, losing 1 3/4 to 35 5/8.
Still, stocks held up well given the decline in bond prices, said Peter Canelo, chief investment strategist at NatWest Securities.
“There is a growing perception the economy is getting stronger,” Canelo said.
Because of that perception, there was a rally in the battered so-called cyclical stocks--the issues of companies whose fortunes are closely tied to the economy, such as autos, oils and chemicals.
* Goodrich rose 1 5/8 to 44 1/4 and Minnesota Mining & Manufacturing rose 2 3/4 to 107 3/8, while Ford rose 1 1/4 to 58 5/8 and Chrysler jumped 1 to 53 7/8.
* Platinum Technology, which trades on Nasdaq, fell 2 3/8 to 7 1/2 after the company posted lower than expected quarterly earnings Friday.
* Merck, however, rose 1 1/4 to 32 1/4 after announcing better than expected earnings for the three months that ended with September. That announcement buoyed the stocks of other drug companies.
* IWERKS sold 3 million shares at 18 each. The stock will begin trading today on Nasdaq with the symbol IWRK. Elsewhere, golf cart maker Club Car sold 4.13 million shares at 17 1/2 each. It also begins trading today.
Overseas stocks were mixed. Frankfurt’s DAX 30-share average ended at 2,033.32, up 18.290 points, while London’s Financial Times 100-share average gained 16.8 points to close at 3,137.6. In Tokyo, the Nikkei average closed down 102.21 points at 20,072.21.
In Mexico City, the Bolsa index jumped 28.74 points to a record 1,991.61.
In Brazil, share prices plunged on fears that elections now scheduled for November, 1994, will be moved up, potentially creating a volatile political situation. In Sao Paulo, the Bovespa index slid 8.6%, or 1,663 points, to 17,274.
Other Markets
The bond market backpedaled amid rumors that two influential investors were that betting bond prices will fall and on news that Morgan Guaranty Trust Co. was cutting its prime rate.
“There was a certain nervousness at the high levels the market reached last week and a certain correction was viewed as inevitable,” said Anthony Karydakis, senior financial economist at First Chicago Capital Markets.
The long bond’s yield soared to 5.85% from 5.79% on Friday, pushing its price, which moves in the opposite direction, down 7/8 point, or $8.75 per $1,000 in face value Monday.
The federal funds rate, the interest on overnight loans between banks, was 3%, unchanged from Friday.
Market Roundup, D10
