Dow Off 48.37; Bond Yield and Gold Price Up
Surging long-term interest rates, combined Thursday with reaction to the assassination of Mexican presidential candidate Luis Donaldo Colosio, fueled a selloff on Wall Street.
The Dow Jones industrial average fell 48.37 points. It ended at 3,821.09, after recovering somewhat from a 65-point loss earlier in the day.
The Treasury’s key 30-year bond yield shot up to 6.95% from 6.89%, pushing down prices, which move in the opposite direction, 11/16 point, or $6.88 per $1,000 in face amount.
Losses cut a wide swath through the stock market, and broader market indexes were lower as well. The New York Stock Exchange’s composite index fell 2.32 to 257.96. The Nasdaq composite index of mostly smaller stocks lost 10.83 to 786.78. The Standard and Poors 500 fell 4.19 to 464.35. On the American Stock Exchange, the market value index slipped 3.72 to 469.66.
Big Board volume was heavy at 303.8 million shares, up from 281.6 million shares traded Wednesday. In the broader market, declining issues outnumbered advancing ones about 10 to 3 on the NYSE.
The rout in the stock market began with the opening bell, as bonds extended losses that began late Wednesday after several banks raised their prime lending rate. Soaring commodity prices, Mexico’s political turmoil and other bearish news unnerved the already jittery credit market.
Led by the rise in gold prices, the Commodity Research Bureau index--used as a barometer of inflation trends--soared 0.74 to a nearly four-year high of 230.84.
Precious metals accelerated their rally. Gold and silver futures vaulted higher on buying linked to the assassination news in Mexico, fresh overseas demand and nagging inflation fears.
Gold jumped $4.60 on the New York Comex to $391.60, the highest price for a near-term contract since late November, 1989. Silver gained 9.4 cents to finish at $5.725 an ounce. Since March 8, silver has gained 56.5 cents an ounce, or 11%. Gold has risen just 4% since then.
Rising commodity prices routinely upset the bond market because inflation eats away the value of fixed interest-bearing investments. Moreover, the bond market’s worries have grown since the Federal Reserve began tightening credit conditions this year, with the stated purpose of keeping a lid on inflation pressures.
“You’ve got these forces that on their own would not take down the market, but pushing them all together . . . creates a very nervous environment,” said Peter McTeague, market strategist at MCM MoneyWatch in Boston.
The Fed announced its latest interest-rate increase Tuesday, nudging up its target for the federal funds rate 1/4 point to 3.5%. The funds rate, the interest on overnight loans between banks, remained at 3.5% Thursday, unchanged from late Wednesday.
Major banks have followed the Fed’s rate increase by pushing up their prime lending rates 1/4 point, to 6.25%.
The inflation and interest-rate concerns came against a backdrop of uncertainty over the implications of the Colosio assassination. Colosio, the leading Mexican presidential candidate, was expected to win Mexico’s Presidency in August.
Analysts said the stock market’s performance in the next few sessions may determine if there has been a significant change in investor psychology.
“So far on these downdrafts we have not had a follow-through,” said Jonathan Dodd, market analyst at Dean Witter. “As long as that continues, the market can stay intact.”
The Mexican financial markets were closed on Thursday. In New York, Telefonos de Mexico’s benchmark American depository receipts fell 3 5/8 to 60 1/8 and was the volume leader on the New York Stock Exchange, following a delayed opening.
Other Mexican stocks fell in heavy U.S. trading as investors reacted to Colosio’s killing, included glassmaker Vitro, which dropped 1 to 20 1/2, and construction company Empresas ICA which ended off 2 1/4 at 25 7/8.
Among the market highlights:
* Auto stocks were big losers after a report that Sanford Bernstein & Co. downgraded the group’s rating. General Motors fell 2 1/8 to 58 3/8; Chrysler fell 2 to 56 1/8; Ford slid 2 to 61 3/8.
* Gold shares gained, with Newmont Mining up 1 1/4 to 58 1/2, Homestake Mining up 7/8 to 22 5/8, Battle Mountain Gold up 1/4 to 12, Sunshine Mining up 1/8 to 2 3/8, American Barrick up 1/2 to 25 3/4 and Placer Dome up 1/4 at 25 1/4.
* Capital Cities/ABC fell 16 to 702 3/4. Philip Morris announced a $10-billion libel lawsuit against ABC, alleging that false and defamatory statements were made on television about cigarettes being “artificially spiked” with nicotine.
* The stocks of economically sensitive companies were sharply lower. Caterpillar was off 3 7/8 at 116 7/8; International Paper fell 7/8 to 69 1/2.
* Media Vision shrank 10 1/2 to 11 after announcing price cuts and saying it was delaying delivery of one of its multimedia products until the second quarter, and said the delay would “significantly impact” its first-quarter revenues.
* Mobile Telecommunications Technologies surged 4 5/8 to 20 1/2 on news of a joint venture with Microsoft.
* Loral gained 3/8 to 41 3/8 after it announced it is forming a limited partnership with Qualcomm to own and operate a satellite wireless communication system.
Stocks were mixed in overseas trading. Shares fell sharply in London, with the Financial Times 100-share average dropping 33.6 points to close at 3,121.7. Tokyo’s Nikkei average ended 75.8 points higher at 20,037.90. In Frankfurt, the DAX-30 average edged up 0.55 point to finish at 2,161.68.
Stocks fell sharply in Hong Kong on profit-taking. The Hang Seng index ended down 144.78 points at 9,320.75.
The dollar fell sharply against most currencies on continuing worries over the Clinton Administration’s Whitewater affair and the heavy stock and bond market losses. In addition, dealers said Mexico’s political turmoil contributed to the nervous climate.
The dollar dropped to new 1994 lows against the mark, closing at 1.6655 marks, up from Wednesday’s 1.6805 marks.
The greenback ended at 104.45 Japanese yen, down from 106.25 yen on Wednesday.
