FINANCIAL MARKETS : Markets Mixed as Traders Assess Impact of Rate Hike
Stocks and bonds closed mixed Wednesday as investors searched for winners and losers in the wake of the Federal Reserve Board’s latest interest rate hike.
In the stock market, the Dow industrials eased 8.09 points to 3,776.48, but other indexes were mostly higher. Trading was heavy.
Long-term Treasury bond yields, meanwhile, rose slightly after tumbling Tuesday in a relief rally sparked by the Fed rate increase. The 30-year T-bond yield inched up to 7.40% from 7.36% on Tuesday.
In the municipal bond market, California got a fairly warm reception as it sold $700 million in general obligation bonds.
But the stock market supplied most of the fireworks Wednesday, though they were in individual stocks rather than broad indexes.
While the Dow eased, another powerful rally in technology stocks lifted the Nasdaq composite index of mostly smaller stocks 7.15 points to 742.66, highest since early June.
Some analysts said smaller stocks attracted buyers who figure the Fed’s latest half-point hike in short-term interest rates will succeed in slowing the economy. Under that scenario, earnings growth of big companies might slow, forcing investors to hunt for growth among smaller “niche” firms.
In the same vein, profit-taking hit some economy-sensitive industrial stocks on Wednesday.
Overall, however, winners topped losers by 12 to 10 on the New York Stock Exchange, and investors’ heightened interest was evident in heavy trading volume of 313 million shares.
The Treasury bond market was weaker, as buyers failed to materialize to follow through on Tuesday’s rally. Yields had slumped on the expectation that the Fed’s increase in short rates will slow economic growth and thus reduce the threat of higher inflation.
But “it remains to be seen whether investors will now put cash to work” in bonds, said Kathleen Camilli, economist at Maria Fiorini Ramirez Inc. in New York.
Still, demand was healthy Wednesday for California’s $700 million offering of general obligation bonds, and the tax-free yields were lower than expected. Most of the bonds carried private insurance to make them more attractive.
Traders said three-year issues in the California bond offering yielded 4.5% annualized, five-year issues yielded 5%, 10-year were at 5.45% and 30-year at 6.15%.
Among Wednesday’s stock market highlights:
* Key foreign markets rallied, following U.S. shares higher. In London, the FTSE-100 index surged 43.0 points to 3,190.30, while Paris’ CAC index rose 22.63 points to 2,034.98 and Frankfurt’s DAX index gained 19.15 points to 2,162.29.
In Asia, Tokyo’s Nikkei-225 index added 38.20 points to 20,824.56 and Hong Kong’s Hang Seng index leaped 171.35 points to 9,537.97.
* Mexican stocks also continued to advance, with the Bolsa index up 5.05 points to 2,699.65. And in Sao Paulo, Brazil, the Bovespa stock index rocketed 4.7% on rising optimism that the markets’ favorite candidate, Fernando Henrique Cardoso, will win the presidential election in October.
* In U.S. trading, tech stocks leading the Nasdaq market higher included Intel, up 2 3/16 to 63 3/4; Adobe Systems, up 1 5/8 to 33 5/8; Dell Computer, up 2 7/16 to 35 1/2; Oracle Systems, up 1 1/8 to 39 7/8, and 3Com, up 2 1/4 to 58 5/8.
But CompUSA fell 1 1/2 to 7 3/8. The computer retailer reported a bigger-than-expected quarterly loss.
* In the takeover rumor mill, new talk of a bid for Eli Lilly sent that stock up 3 to 57 1/2. Other drug stock winners included Bristol-Myers, up 7/8 to 58 1/8; Pfizer, up 1/2 to 67 1/4, and Amgen, up 1 3/16 to 54 7/8.
* Among other health care stocks, Medtronic leaped 6 5/8 to 96 3/4 after the pacemaker manufacturer reported sharply higher quarterly earnings.
* Investors continued to snap up other classic growth stocks, whose stable earnings growth may look more appealing if the economy slows. Coca-Cola, for example, rose 1/2 to 46 1/8. It was helped by investor Warren Buffett’s announcement that he bought 4.9 million shares in July. His stake now is 99.8 million shares or 7.8%.
Other growth issues gaining included Toys R Us, up 1 1/8 to 36 7/8; and Colgate-Palmolive, 5/8 to 55 7/8.
* On the downside, some industrial issues slid. GE fell 5/8 to 47 7/8, International Paper lost 1 1/4 to 71 7/8, Union Carbide dropped 7/8 to 32 3/8 and Dow Chemical fell 1 3/8 to 69 1/4.
* Among Southland issues, IDB Communications surged 3/4 to 9 7/16. The stock was pulled up as shares of LDDS Communications, which previously agreed to buy IDB in a stock swap, rocketed 2 1/4 to 24 on rumors that General Motors’ EDS unit bid for LDDS.
Separately, IDB said it expects to post a second-quarter loss stemming in part from a change in accounting policies. The company had been criticized for booking international long-distance revenue before it was received.
