Short-Term Rates Rise; Dow Eases
Stocks closed mixed Tuesday, with blue chips slightly lower, as short-term interest rates continued to creep higher.
But long-term bond yields fell again ahead of today’s market holiday in honor of former President Richard Nixon, who died Friday.
In the stock market, the Dow industrials slipped 6.24 points to 3,699.54 after rocketing 57 points Monday on a combination of falling bond yields and strong corporate earnings reports.
On Tuesday, the market meandered for much of the day, and trading was relatively subdued ahead of today’s unexpected holiday. “They had a big day (Monday) and took a little rest,” said Pat Davis, trader at Salomon Bros.
Still, winners topped losers by 13 to 9 on the New York Stock Exchange, and smaller stocks posted stronger gains than blue chips. The Nasdaq composite index of mostly smaller issues rose 3.41 points to 734.21. It has risen 4.1% from its 1994 low last Wednesday.
Bonds appeared to be more influenced than stocks by Tuesday’s economic news. Another rise in short-term interest rates may have been tied to the Conference Board’s report that its consumer confidence index surged in April to the highest level in nearly four years.
Rising confidence bodes well for the economy, thus raising the chances that the Federal Reserve Board will boost short-term interest rates further to restrain growth.
Traders pushed the yield on three-month Treasury bills to 3.98% on Tuesday, up from the 3.94% on three-month bills auctioned Monday.
But longer-term interest rates may have taken their cue from a Labor Department report Tuesday. The department said its employment cost index, considered one of the best gauges of wage inflation pressures, rose 3.2% in the year ended March 31--the smallest annual increase on record.
Because long-term yields are sensitive to inflation fears more than anything else, the Labor report helped the bond market prolong the rally that began a week ago. The yield on the Treasury’s 30-year bond yield fell to 7.10% on Tuesday from 7.15% on Monday. It was 7.42% on April 18.
“People are running a little scared that the market might start taking off” and that long-term yields may plummet further, said Michael Marzano, head of bond futures trading at Yamaichi International. People who sold bonds in recent weeks “are genuinely afraid of being left out,” he said.
Sentiment in the bond market was helped further by Tuesday’s Treasury auction of $17 billion in two-year notes, for which demand was surprisingly strong. The high yield on the notes was 5.59%, up from 5.15% at the last auction March 22 but below the 5.61% to 5.62% yield that had been expected.
Among the stock highlights:
* Many industrial issues continued the rebound that began last Thursday. 3M gained 1 to 48 3/4, Clark Equipment leaped 1 3/8 to 69, Monsanto added 1 1/8 to 81, Phelps Dodge gained 1 1/4 to 54 7/8 and Dow Chemical jumped 1 3/8 to 63 1/8.
* Technology stocks were mixed. Advanced Micro Devices jumped 1 1/8 to 26 7/8, Exabyte added 1 1/8 to 19 3/8 and FileNet gained 1 to 27 1/4, but Cabletron Systems fell 2 3/8 to 104 5/8 and Cray Research tumbled 4 1/4 to 21 3/8. Cray reported disappointing first-quarter computer orders.
Another tech loser was software firm Gupta, which tumbled 9 3/4 to 13 1/2 on a dismal earnings report.
* Many telecom stocks were strong. IDB Communications leaped 1 3/8 to 16 7/8 after reporting a 117% rise in first-quarter profit.
Other winners included Scientific Atlanta, up 1 3/8 to 29 3/8; Cencall Communications, up 2 to 23 1/2, and Tellabs, up 2 1/4 to 65.
* Some financial stocks came under pressure. Insurance firm Unum dove 4 1/4 to 50 1/4 on its earnings report, and annuity firm SunAmerica’s report also failed to impress. Its shares fell 1 7/8 to 36 3/8.
Also falling were BankAmerica, off 1/2 to 43; First Chicago, down 1/2 to 53 1/8, and insurer General Re, off 1 3/4 to 112 1/4.
Overseas, Frankfurt’s DAX index surged 40.98 points to 2,243.20 on the heels of Monday’s Wall Street rally. London’s FTSE-100 index rose 19.2 points to 3,125.3.
In Tokyo, the Nikkei average lost 80.21 points to 19,628.93. In Mexico City, the Bolsa index surged in late trading to close 93.05 points higher at 2,284.13. Investors responded to news of a currency swap agreement among the United States, Canada and Mexico, designed in part to strengthen the peso.
Light, sweet crude oil fell 33 cents to $16.91 a barrel on the New York Merc. Gold rose on the New York Comex to $373.90 an ounce, up 50 cents; silver fetched $5.17, up 4.5 cents.
