Stocks Mixed as Long-Term Yield Climbs
Market Overview * Stocks ended mixed in quiet trading Tuesday as investors worried about rising interest rates and tried to find their footing following last week’s sharp drop in share prices.
* Long-term bond yields rose sharply, pushing prices lower as traders expressed anxiety about the outcome of several major auctions and the trend for inflation.
* Gold staged a partial recovery.
Stocks
Stocks traded in a narrow range, moving between positive and negative territories with little firm direction. However, smaller capitalization stocks moved sharply higher, led by technology issues.
The Dow Jones average fell 0.29 to 3,906.03. But in the broader market, rising issues outnumbered declines by about 11 to 9 on the New York Stock Exchange.
Big Board volume totaled 318.18 million shares, down from Monday’s 348.27 million. The winter storm in the Northeast slowed volume in the afternoon as some traders left early to escape the snow, said Eugene Peroni, director of technical research at Janney Montgomery Scott.
Investors were still uncertain after Friday’s 96-point drop in blue chip stocks followed by Monday’s almost 35-point jump in the Dow average, said David Holt, director of technical research at Wedbush Morgan Securities.
“It’s a day of gentle sparring between buyers and sellers,” one analyst said. “A lot of people are still trying to make up their minds what to do.”
The rising bond rates were were seen as a negative for stocks because it raises the cost of borrowing for companies and makes share prices less attractive.
Some of the stocks most sensitive to the economic cycles were again among the winners, with autos, papers, chemical and heavy machinery issues performing well. As the economy has shown signs of improving, those stocks have won favor.
But technology shares stole the show. Most are traded on the Nasdaq index, which didn’t recover from last week’s drop as much as blue chips on Monday. The Nasdaq composite index rose 3.50 to 782.70, moving steadily higher all day.
Among the market highlights:
* Intel helped buoy the index, rising 1 1/2 to 63 1/2. Semiconductor stocks generally were higher ahead of the industry’s January so-called book-to-bill report.
* Microsoft, however, didn’t fare so well, falling 2 to 78 3/4. A Soundview Financial Group analyst lowered his rating on the stock Monday.
* Among cyclicals, GM rose 1 3/4 to 64 3/4, and Alcoa advanced 1 1/4 to 79 3/8.
* But the gains in economically sensitive stocks were offset by losses in Sears, which was off 3 1/4 to 47 3/4 on disappointing fourth-quarter earnings.
* Tobacco shares fell after the Canadian government hiked corporate taxes for tobacco manufacturers. Philip Morris dropped 1 1/8 to 58 3/4, and RJR Nabisco ended off 1/8 to 7 1/4 although analysts said the tax change would have little impact on U.S.-based multinationals.
AlliedSignal jumped 1 1/2 to 77 3/8 after reporting strong fourth-quarter earnings, declaring a two-for-one stock split and raising its quarterly dividend.
* Pfizer fell 2 1/4 to 59 3/8 after the company told analysts it was comfortable with the low side of their 1994 earnings forecasts but that sales growth in the first quarter would not match full-year growth.
Stocks abroad recovered from the previous day’s sharp losses. Tokyo’s Nikkei average ended 236.83 points higher at 20,251.23, and Frankfurt’s 30-share DAX average closed 27.81 points up at 2,107.21. In London, the Financial Times 100-share average closed up at 3,467.5, up 48.4 point.
Credit
Treasury yields were higher most of the session, but surged late in the session. Analysts didn’t cite any specific factors.
The key 30-year bond yield soared to 6.45% from 6.39% the day before, pushing prices down 25/32 point, or $7.81 per $1,000 in face value, at closing. Prices and yields move in opposite directions.
The Treasury’s auction of $17.11 billion of three-year notes, the first batch of $40 billion in new securities this week that make up the quarterly refunding of government debt, met analysts’ expectations.
In addition to the three-year auction, the Treasury scheduled auctions of $12 billion in 10-year notes Wednesday and $11 billion in 30-year bonds Thursday.
“The market is still trying to price itself at a comfortable level ahead of the 10- and 30-year” auctions, said Kathleen Stephansen, senior economist at Donaldson Lufkin Jenrette Securities Corp.
A closely watched retail sales report, the Johnson-Redbook Service survey of early February sales, showed a 0.5% gain from levels in January. But Samuel Kahan, economist at Fuji Securities Inc., said that the figures were sluggish compared to last year’s level and may have helped support bond prices.
Analysts detected lingering uncertainty after the Federal Reserve boosted the federal funds rate last week by 0.25 percentage point to 3.25%.
The federal funds rate, the interest on overnight loans between banks, was 3.125%, down from 3.313% late Monday.
Other Markets
Gold prices rose as some investors shook off fears that higher interest rates would hurt demand.
Gold prices rose in New York after dropping in Europe. On the New York Comex, gold for current delivery closed at $382.30 an ounce, up $3.40 from Monday. Silver for current delivery closed at $5.261, up 3.1 cents from Monday. On Monday, gold dropped $7.70 and silver plunged 18.7 cents in a delayed reaction to the Federal Reserve’s decision Friday to raise short-term interest rates.
Higher rates tend to alleviate inflation pressures and can reduce the incentive to own precious metals.
Meanwhile, the dollar rose against most major currencies on Tuesday after Britain cut interest rates and investors sold pounds in favor of dollars.
March crude oil deliveries ended 4 cents lower at $15.21 a barrel on the New York Merc after erasing strong gains posted early in the session on talk of cuts in OPEC and Russian production.
Market Roundup, D8
