Blue-chip stocks closed slightly lower Monday after a bond market rally ran out of steam.
* Bond yields rebounded from their lows after investors took profits from the recent market run-up.
* Gold prices fell sharply, following a decline in oil and other commodities.
The Dow Jones 30-share average climbed to the 3,700 level as interest rates dropped on the prospect that the lowest oil prices since June, 1990, would lessen inflation pressures.
“The bonds slowly slipped away, and equities kind of slid along with them,” said Jim Schroeder, market analyst at MMS International.
The Dow ended the day down 6.15 points at 3,677.80 on Big Board volume of 272.71 million shares, compared to 90.12 million shares in an abbreviated session Friday.
In the broader market, declining issues edged out advancers on the New York Stock Exchange.
The price of crude oil on commodity markets has been skidding since OPEC ministers declined to cut production last week.
The bond market, which likes low oil prices, rose Monday as crude declined and stocks followed bonds higher.
Lower oil prices help bonds by putting a damper on inflation. Bond traders fear inflation because it erodes the value of their investments, which pay a fixed rate of return.
As bond prices rise, the interest rates that sellers agree to pay on those bonds falls, and any sign of lower interest rates make stocks more attractive compared to other investments such as certificates of deposit.
Crude oil bottomed out Monday on the New York Mercantile Exchange at about $15.10 a barrel, then rose late in the day, closing at $15.31, off $1.07 from Friday.
At about the same time, bond prices were turning downward and stocks followed along, just as they have for the past several weeks.
George J. Gaspar, an oil analyst with the Milwaukee investment firm Robert W. Baird & Co., said he doesn’t expect oil prices to fall much further.
“I think what we’re looking at here is another day or two of shakeout. I don’t believe there’s any significant imbalance in supply and demand,” he said.
“We are looking at a winter weather pattern that’s quite severe in Europe and Russia, and it looks like the exporting capacity of the Commonwealth of Independent States is declining,” he said.
Among the market highlights:
* Transportation stocks remained strong because lower oil prices mean lower costs. UAL, parent of United Airlines, gained 3 1/4 to 148 1/4, Federal Express was up 1 3/8 at 68 3/4, and Southwest Airlines surged 1 1/2 to 35. CSX rose 7/8 to 83 3/8.
* Oil stocks slid with the price of crude early in the day, but some recovered near the close. Chevron was up 1/8 at 85 5/8, and Ashland Oil was up 5/8 to 34. Atlantic Richfield lost 1 7/8 to 103, while Schlumberger, the oil service company, was down 1 1/2 at 57. Triton Energy shed 1 3/4 to 29 7/8, and Texaco dropped 1/2 to 63 3/8.
* Gold stocks, often used as a hedge against inflation, fell with oil stocks. Newmont Mining tumbled 2 1/2 to 52, and Placer Dome dropped 1 to 22 3/4.
* Kendall Square Research, a maker of parallel computer systems, dropped 3 3/4 to 7 1/2 after it said its auditors were withdrawing their report on its 1992 financial statements. The company also said previous results “should no longer be relied upon.”
Overseas, London’s Financial Times 100-share average ended 24.4 points firmer at 3,135.8, while in Frankfurt, the 30-share DAX average lost 3.81 points to close at 2,043.43.
The tumbling oil prices touched off a rally in the Treasury market, pushing bond yields sharply lower in early trading amid expectations that inflation will remain low.
Yields rose in thin afternoon trading ahead of important economic data, including Friday’s report on November employment.
The Treasury’s key 30-year bond ended at 6.23%, after having fallen to 6.19% earlier in the day. It closed at 6.24% on Friday. The long bond’s price, which moves in the opposite direction, ended up 7/32 point, or $2.19 per $1,000 in face value.
Prices of short-term Treasury issues fell by up to 1/16 point, while intermediate-term notes ranged from 1/32 point higher to 1/16 lower, the Telerate Inc. financial information service reported.
The market’s inability to sustain the initial gains demonstrated the eagerness of mutual fund managers to sell bonds to lock in profits by the end of the year.
While prices of fixed-income securities rallied during most of 1993, they have plunged sharply since mid-October amid concern that the economic recovery is picking up steam. Stronger growth can lead to higher inflation, which tends to reduce the value of securities that pay a fixed rate of return.
“Although these are constructive developments in metals and oils, we still confront the potential of economic data later in the week,” said William Sullivan, director of money market research at Dean Witter, Discover & Co.
The federal funds rate, the interest on overnight loans between banks, was 3.063%, down from 3.25% on Friday.
Gold, considered an investment hedge against rising inflation, plunged. Gold for current delivery fell $7.80 to $369.40 an ounce on New York’s Comex.
Silver prices also fell in New York, losing 19.8 cents to close at $4.445 an ounce.
August F. Arace, gold analyst for John Hancock Advisers, said the sharp drop followed the decline in oil prices, a key inflation indicator, which in turn led to a fall in interest rates.
Meanwhile, the dollar closed mixed in a subdued session, with traders awaiting Friday’s release of the November jobless report and other major economic statistics. In New York, the dollar closed at 109.20 Japanese yen, up from 108.85 on Friday. It fell to 1.709 German marks, down from 1.713.
Market Roundup, D8