Dow’s Plunge Triggered by Rate Fears : Wall Street: ‘Circuit breakers’ kick in to help slow the fall. Collapse of the TCI/Bell Atlantic merger also a factor.
Investor fears fed by a surge in long-term interest rates sent stock prices plummeting Thursday.
The collapse of a multibillion-dollar merger and weakness in stocks abroad added to the gloom on Wall Street, where the Dow Jones industrial average dropped enough in the final half-hour of trading to trip a New York Stock Exchange “circuit breaker” aimed at coping with extreme conditions and preserving investor confidence.
The blue chip indicator lost 51.78, closing at 3,839.90.
Broader market measures also posted steep declines. The NYSE composite index fell 3.38 to 257.75 and the Standard & Poor’s 500 index dropped 6.43 to 464.26.
At the same time, selling waves washed over smaller stocks as well. The Nasdaq Stock Market composite index shed 9.67 to 779.44.
Losers swamped gainers on the NYSE by about 4 to 1 on heavy Big Board volume totaling 342.94 million shares, up from 309.91 million Wednesday.
Among the disconcerting factors for the stock market was the announcement late Wednesday that Bell Atlantic’s planned acquisition of Tele-Communications Inc. had been terminated.
The news was a blow for cable and communications companies in particular because their stocks had been bid up in recent months due to takeover speculation as investors bet that the industries would consolidate.
At the same time, a bearish sentiment rampant in the bond market overshadowed a decent showing at the Treasury’s five-year note auction, and the closely watched 30-year Treasury bond ended the day down more than a full point, driving up its yield to 6.73% from 6.65% on Wednesday. The long bond’s price, which moves in the opposite direction, slumped 1 1/16 points, or $10.63 per $1,000 in face value.
Traders began bailing out of bonds from the opening in response to a government report of unexpectedly robust economic activity.
The Commerce Department reported that orders to U.S. factories for durable goods jumped a surprising 3.7% in January. Many economists expected a 1% increase.
Demonstrating the bond market’s bearishness, the Treasury auction of $11 billion in five-year notes met decent demand but failed to quell an afternoon selling spree.
Yields on the five-year notes rose to their highest level in more than a year. The high yield was 5.61%, up from 5.10% at the last auction Jan. 26. It was the highest rate since five-year notes sold for 5.66% on Jan. 27, 1993.
The bid-to-cover ratio, a measure of auction demand comparing bids offered to those accepted, was 2.85 to 1. That was up from 2.69 to 1 in the previous 12 auctions of five-year notes.
Meanwhile, investors who blamed the stock market’s slide mainly on the bond market’s performance noted that attitudes have turned against stocks.
“There’s real concern here about the rise in interest rates. The fear now is that this rise in interest rates will reduce the flow of money into mutual funds. If it does, then the market has real problems,” said Michael Metz, a vice president at Oppenheimer & Co.
Metz said portfolio managers have been culling holdings to raise cash in case of mutual fund redemptions.
Among the market highlights:
* Cable television stocks were hammered by the news of the canceled TCI/Bell Atlantic deal. TCI dropped 1 7/8 to 22 3/8, Comcast lost 1 to 19 1/2 and CableVision Systems plunged 5 1/4 to 62 1/4.
* The shares of cable equipment makers, which are seen as having been set to benefit from the merger, also lost ground. General Instrument shrank 6 1/8 to 44 5/8, DSC Communications fell 2 1/2 to 52 3/4 and Tellabs lost 1 to 51 3/4.
* Bell Atlantic, which had drifted lower in the weeks after the merger deal’s announcement in October, ended up 1 3/4 to 54 1/2 as analysts raised their rating on the company.
* Novell rose 1 to 24 5/8 after the software company reported strong earnings.
* Stac Electronics surged 2 1/8 to 6 1/2. On Wednesday, a federal jury awarded Stac $120 million from Microsoft for patent infringement.
Most foreign stock markets suffered setbacks, except Tokyo’s, with the 225-issue Nikkei average rising 423.65 points, or 1.84%, to end the day at 19,765.48.
In Frankfurt, London and Paris, stocks moved sharply lower amid worries about the implications of Russia’s political uncertainty, speculation about rising British interest rates and disappointment over a small rate cut by Bank of France.
Mexico City’s Bolsa index rebounded from early losses to close up rose 19.98 points at 2,592.33.
Other Markets
The dollar dropped sharply, hurt by Wall Street’s decline, more signs of inflation and fresh indications that the Clinton Administration wants the U.S. currency to weaken against the yen.
In New York, the dollar ended at 104.85 Japanese yen, down from 105.55 on Wednesday. The U.S. currency also fell to 1.717 German marks from 1.729.
In other markets, gold prices ended lower on the New York Comex. Gold lost $1.20 an ounce to close at $376.50. Silver fetched $5.172 an ounce, off 5.7 cents.
Crude oil futures prices posted their strongest one-day gain in nearly a month after industry and government reports showed lower U.S. supplies of gasoline and other refined products than traders expected. Light, sweet crude oil for April delivery rose 36 cents on the New York Mercantile Exchange to $14.77 a barrel. It was the market’s biggest gain since Feb. 1.
Market Roundup, D8
* ROBUST ECONOMY: Orders to U.S. factories for durable goods jumped a surprising 3.7% in January. D2
