FINANCIAL MARKETS : Bond Yields Jump; Gold, Silver Gain
Market Overview * Bond investors entered the new year in a sour mood, dumping bonds on new signs of economic strength. Yields jumped to nearly five-month highs.
* U.S. stocks closed mostly lower, hurt by a renewed selloff in small growth stocks. Overseas, most foreign markets started the new year with rallies, except in Mexico City.
* Silver soared to a five-month high, and gold and oil also gained. The dollar rallied sharply against major currencies.
Credit
Treasury bond yields rose across the board as investors viewed strong new reports on the economy as pointing to higher interest rates in ’94.
The yield on the Treasury’s main 30-year bond jumped to 6.42% from 6.35% on Friday, continuing a rise that accelerated late last week.
The last time the bond’s yield was this high was Aug. 12, when it closed at 6.44%.
Among shorter-term bonds, the yield on five-year T-notes surged to 5.31% from 5.20% on Friday, and one-year T-bill yields surged to 3.64% from 3.59%.
Analysts said sellers who had sat out last week’s thinly traded holiday market joined the fray Monday, pushing yields up from the outset of trading.
Bonds’ troubles accelerated with the midmorning release of two economic reports that support the view of a growing economy.
The National Assn. of Purchasing Management said its monthly survey shows continued expansion in the manufacturing sector in December. The government also said construction spending rose 1.8% in November for the seventh consecutive monthly advance.
The continuing barrage of improving economic statistics over the past month has boosted expectations that 1994 will be a strong year for the economy--raising the likelihood of higher inflation and the likelihood that the Federal Reserve Board will tighten credit for the first time since 1989.
Some bond investors, anticipating higher rates, appear to be trying to exit the market now, perhaps with the idea of re-entering later in 1994 if yields do rise.
Many experts insist there is still no basis for worry about either rising inflation or a Fed tightening. But in the near term, the bond selloff may take on a life of its own, analysts concede.
“If you’re looking for something positive for the bond market, it is tough to find,” said Jim Kenney, head government securities trader at Prudential Securities. The market’s next big hit could come Friday, when the government reports on December job growth.
Stocks
The Dow industrials managed to close higher, but nearly all other key market indexes slumped as bond yields rose.
The Dow added 2.51 points to 3,756.60, rallying back in the final minutes from what looked like a certain loss. But the Nasdaq market of mostly smaller stocks suffered a broad hit after last week’s sharp rally. The Nasdaq composite index tumbled 6.04 points to 770.76. Losers well outnumbered winners on both Nasdaq and the NYSE.
Analysts said investors were disappointed by the bond market’s continuing selloff. As interest rates rise, stocks lose their luster.
Also, many traders may have been buying smaller stocks last week in anticipation of a traditional January rally in those issues. When the Nasdaq market failed to rally early Monday, some traders may have bailed.
Wall Streeters say the market remains vulnerable to rising interest rates, at least until fourth-quarter corporate earnings reports begin to roll in mid-month.
Among Monday’s highlights:
* Smaller-company growth stocks that suffered renewed selloffs included Snapple Beverage, off 3/4 to 25 1/2; America On-Line, off 2 1/2 to 56; Cott, down 1 1/2 to 22 7/8; International Game Technology, off 1 1/8 to 28 3/8, and restaurant chain Fresh Choice, down 2 to 25 1/4.
* Many computer-related stocks were weak. Compaq fell 1 to 72 7/8, Cabletron Systems lost 3 to 109 1/2, Motorola tumbled 3 5/8 to 88 5/8, Lotus dropped 1 1/2 to 53 1/2 and Powersoft sank 2 to 38 3/4.
* Major retail stocks gave ground. Dillard lost 2 to 36, Nordstrom fell 1 to 32, J.C. Penney eased 1 1/8 to 51 1/2 and Sears fell 1 5/8 to 51 1/4. Toys R Us fell 7/8 to 40 after it named Michael Goldstein, its vice chairman, to succeed Charles Lazarus as CEO.
* On the upside, gold mining stocks started the year with a bang, with gold and silver prices rising further. ASA leaped 3 5/8 to 52 7/8, American Barrick surged 1 3/4 to 30 1/8 and Sunshine Mining jumped 1/2 to 3 1/8.
* Some bargain hunters sought refuge in consumer products stocks, many of which were the market’s worst performers last year. Philip Morris jumped 2 to 57 7/8, Merck gained 7/8 to 35 1/4, General Mills added 1 1/8 to 61 7/8 and Nike was up 1/2 to 46 3/4.
Overseas, the red-hot buying that closed 1993 spilled into the first trading day of the new year. In Hong Kong, the Hang Seng index surged 198.10 points to a record 12,086.49. New highs were also hit in Kuala Lumpur, Singapore, Madrid, Paris and Zurich, among other markets. London and Tokyo markets were closed for holidays.
But the Mexico City market’s dive in the wake of peasant uprisings also clipped shares of Mexican companies and investment funds trading in the United States. Telmex dropped 2 to 65 1/2, the Mexico Fund lost 2 to 37 and the Emerging Mexico Fund sank 2 to 23 3/4.
Other Markets
New signs of a strengthening U.S. economy drove up silver prices, which posted five-month highs. March silver futures leaped 13.3 cents to $5.25 an ounce at New York’s Comex.
Meanwhile, February gold futures added $2.80 to $394.70 an ounce, after retreating from a five-month trading high of $396.
Silver and gold both have many industrial uses that could cause increased demand for the metals in 1994 if the economy continues to expand. Also, some investors use the metals as hedges against possible higher inflation.
In other markets:
* Oil prices rebounded on talk that OPEC might move up its scheduled March meeting to late January or early February to cope with the glutted crude market. February light, sweet crude oil futures rose 39 cents to $14.56 a barrel on the New York Merc.
* Cold weather in Florida sent January orange juice futures up 8.25 cents to $1.13 a pound.
* The dollar ended the first trading day of 1994 on a strong note. It closed at 1.744 German marks in New York, up from 1.739 on Friday. It also rose to 112.60 Japanese yen in New York from 111.83 on Friday, and early today in Tokyo it crossed the 113-yen level.
Market Roundup, D10
