FINANCIAL MARKETS : Stock, Bond Prices Dip on Profit Taking
Stock and bond markets reversed course Thursday after Wednesday’s big rally, as concerns again shifted to the potential for higher interest rates.
Bond yields jumped as some traders focused on a report showing still-strong home sales--even after five Federal Reserve Board credit-tightening moves this year.
In the stock market, the Dow industrials keyed off the bond market and eased 16.84 points to 3,829.89, after soaring 70.90 points Wednesday.
Some traders also began to question Wednesday’s surprise stock rally, which was concentrated in blue chip issues and was said to have been fueled in part by technical trading by one or more large institutional investors.
Twenty points of the Dow’s gain Wednesday was added literally in the final seconds of trading.
The catalyst for Wednesday’s rallies in stocks and bonds was the government’s report that durable goods orders tumbled in July. That revived belief that the economy is slowing and that the Fed may refrain from engineering further interest rate hikes.
But Thursday, a report that existing home sales remained fairly firm in July dashed some investors’ expectations for a marked economic slowdown.
In the bond market, yields rose across the board. The yield on the bellwether 30-year Treasury bond retraced almost all of Wednesday’s slide, rising from 7.45% to 7.53%.
Some traders, however, said activity was so light Thursday that they were reluctant to attach much significance to it.
In the stock market, activity was mixed. The Dow, which had far outpaced other indexes Wednesday, also lost more than most indexes Thursday.
In the Nasdaq market of mostly smaller stocks, the composite index continued to advance, rising 3.08 points to 754.80. That index has led the market higher this month, gaining 4.5% so far, compared to the Dow’s 1.7% rise.
On the New York Stock Exchange, falling issues edged winners by 11 to 10 as volume contracted to 284.2 million shares from 310.5 million Wednesday.
“I think the market’s probably a little overextended here on the short term,” said Edward Collins, head block trader at Daiwa Securities America. He noted that the Dow’s total gain of nearly 100 points Tuesday and Wednesday came “after a very lethargic summer. That’s a lot to digest in a short period of time.”
Yet despite Thursday’s setback--and suspicions about the influence of technical trading games--the Dow remains well above 3,800 and at levels not seen since spring. Some analysts say the broad market’s resilience, especially among smaller stocks, is a good sign heading into September.
“I still view it as some risk out there,” said Steven Goldman, market strategist at Weeden & Co. “But I also think that a bear market wouldn’t show this type of resilience.”
Among Thursday’s highlights:
* Industrial stocks that were big winners Wednesday were pared back. Caterpillar fell 2 3/8 to 112, International Paper lost 1 1/2 to 73 3/8, Eastman Kodak declined 1 to 49 3/8, DuPont was off 7/8 to 59 1/8 and Georgia-Pacific gave up 3/4 to 70 3/8.
* Some financial stocks also gave ground. Federal National Mortgage dropped 2 to 87 3/8, Wells Fargo lost 1 7/8 to 157 3/8, BankAmerica eased 1/2 to 48 1/2 and Federal Home Loan Mortgage sank 1 1/2 to 60 1/4.
* Among the day’s winners, technology stocks resurged. IBM soared 2 to 69 3/8 in heavy trading as some investors responded positively to the company’s decision to cut prices on personal computers.
Other tech stocks rising sharply included Compaq, up 2 1/4 to 38 3/8; EMC, up 1 1/2 to 17 5/8; Autodesk, up 3 1/4 to 62 1/2; Texas Instruments, up 2 7/8 to 81 5/8; Oracle Systems, up 1 5/8 to 43 1/4, and Novell, up 7/8 to 15 5/8.
* Walt Disney slipped 1/2 to 42 3/4 on news that Jeffrey Katzenberg, chairman of its film studio, was leaving.
In overseas trading, Frankfurt’s DAX index jumped 25.84 points to 2,152.21, while London’s FTSE-100 index surged 29.0 points to 3,234.2.
But Tokyo’s Nikkei-225 average slipped back 68.31 points, closing at 20,443.29.
In Mexico City, the Bolsa index closed at 2,776.21, down 22.01 points after the peso, recently strong, dropped sharply.
Traders said the peso was depressed in part by concerns over post-election protests and fraud charges by opposition candidates. “Everybody is thinking about the opposition’s reaction,” said a trader at Banco del Sureste.
It took 3.373 pesos to buy $1 on Thursday, up from 3.355 on Wednesday.
Elsewhere in currency markets, the dollar rose against the Japanese yen as speculators continued to bet that the United States and Japan will manage to reach a trade deal by the end of September.
In New York, the dollar was quoted at 99.55 yen, up from 98.85 on Wednesday. But the dollar eased to 1.5418 German marks from 1.5448.
In commodity markets, wheat prices soared to six-month highs after an influential trade group forecast a decline in the world wheat crop due to drought in Australia and Russia.
September wheat futures jumped 8.25 cents to $3.55 1/4 a bushel.