Dow Falls 36.58 on Comments by Analyst; Bond Yields Up
Market Overview
* Stocks slumped again Thursday as interest rate jitters hit the market and profit takers pulled auto issues lower. Utility stocks dropped sharply.
* Bond yields rose as the Treasury concluded its quarterly refinancing with the sale of 30-year bonds and as investors focused on today’s release of January wholesale inflation figures.
Stocks
The market began the day with a small carry-over rally from Wednesday’s gain, but sellers quickly gained the upper hand. Prices seesawed the rest of the session, but the overall trend was lower all day.
The Dow industrials finished down 36.58 points at 3,895.34, as losers led winners 1,311 to 811 on the New York Stock Exchange.
Analysts said Wall Street was unnerved by well-known Lehman Bros. analyst Elaine Garzarelli’s comments on CNBC-TV. She said that while she remains bullish on the market, she sees a correction of 4% to 7% coming at any time.
Garzarelli “got the ball rolling downhill,” said Guy Truicko, analyst at Unity Management.
Traders were also disappointed by the reaction to General Motors’ quarterly earnings report. GM sank 1 3/4 to 62 1/2, pulling Ford down 2 1/2 to 66 and Chrysler down 1 5/8 to 59 3/4.
Another negative was a sharp decline in utility stocks. The Dow utility index tumbled to a new 52-week low. That selloff suggested that investors remain fearful of another rise in interest rates soon.
Experts say the market is still sorting out the possibilities in the wake of the Federal Reserve Board’s move last Friday to tighten credit for the first time since 1989.
Among Thursday’s highlights:
* Besides the auto stocks, other industrial issues hit by profit taking included Deere, off 1 3/4 to 79 5/8; Caterpillar, down 2 3/4 to 106 1/8, and machine tool maker Cincinnati Milacron, down 1 5/8 to 22 7/8.
* Among utility stocks, Houston Industries shed 7/8 to 43 3/8, American Electric Power dropped 3/4 to 33 5/8 and Commonwealth Edison sank 3/4 to 26 3/8.
* Banking and brokerage stocks were also broadly lower. Merrill Lynch fell 1 1/4 to 40 3/4, First Interstate dropped 1 3/4 to 64 3/4, BankAmerica eased 5/8 to 42 3/4 and NationsBank sank 1 1/4 to 48 1/8.
* On the upside, GTech Holdings soared 3 1/4 to 32 1/4. The company won a $200-million, seven-year contract from the Texas Department of Human Services to provide a system of electronic transfer of welfare benefits.
In foreign trading, London’s FTSE-100 index lost 22.1 points to 3,407.0, while Frankfurt’s DAX index ended at 2,118.96, up 33.67 points. In Tokyo, the Nikkei average inched up 149.32 points to 19,990.70.
In Mexico City, profit takers struck again, pulling the Bolsa index down 41.19 points to 2,818.44. Toronto shares also fell, with the TSE-300 index easing 21.20 points to 4,441.97.
Other Markets
Bond yields rose after Wednesday’s brief respite, as the Treasury finished its quarterly refinancing.
The department sold new 30-year bonds at an average yield of 6.43%, up from 6.33% at the last auction, held in August.
Traders said there was strong demand for the new bonds from Wall Street firms, which now must find buyers among institutional investors. The bid-to-cover ratio, a measure of demand comparing the number of bids offered to those accepted, was 2.78 to 1, up from the average of 2.23 to 1 in the previous 12 auctions.
Analysts attributed the strong demand in part to the fact that the Treasury last spring reduced the frequency of 30-year auctions from four times to twice yearly as part of a shift toward shorter-term securities. That has created a higher perceived value for the bonds.
Even so, the well-received auction didn’t stop traders from pushing other yields up. The yield on 2-year T-notes closed at 4.45%, up from 4.40% on Wednesday.
A key test for the market comes today, when the government issues its first look at inflation in 1994 with the January wholesale prices report. A higher-than-expected number could stoke fears of higher interest rates.
Elsewhere Thursday:
* Light, sweet crude oil futures eased 4 cents to $14.56 a barrel on the New York Merc.
* Precious metals weakened again. February gold dropped $2 to $382 an ounce; March silver slipped 1.5 cents to $5.32.
Market Roundup, D6
