FINANCIAL MARKETS : New Signs of Strength Spur a Selloff
Stocks were hammered in a broad-based selloff Tuesday as new signs of strength in the economy added to mounting fears of rising inflation.
The Dow Jones industrial average fell 45.76 points to 3,801.13. The stock market’s best-known barometer has fallen more than 150 points since hitting its recent high of 3,953.88 on Sept. 15. Broader market barometers also plummeted.
Reports of strong auto and retail store sales released late in the day added to the picture of a surging economy, further spooking investors about inflation and giving stock prices another downward shove.
The decline went across the board, with declining issues outnumbering gainers by about 13 to 4 on the New York Stock Exchange. Volume was a hefty 336.12 million shares, up from 278.43 million on Monday.
In the inflation-sensitive bond market, the news boosted the yield on the Treasury’s key long bond to 7.88%, the highest since June, 1992. It closed at 7.85% on Monday. Its price, which moves in the opposite direction, fell 11/32 point, or $3.44 for every $1,000 in face value.
The rising bond rates pushed the dollar lower against the German mark. However, the U.S. currency held its value against the Japanese yen. In New York, the dollar closed at 1.546 German marks, down from 1.554 marks on Monday. The U.S. currency closed at 99.63 Japanese yen, up from 99.58 yen.
Strong September sales of cars and light trucks offered the latest indication that the economy is showing no signs of cooling off. In addition, Johnson Redbook Service reported that U.S. retail store sales rose 2.3% on a seasonally adjusted basis in September, compared to the month-earlier level.
In addition, the Commerce Department said its key economic forecasting gauge rose in August at the fastest rate in five months. The Index of Leading Indicators, which is supposed to forecast economic trends six to nine months ahead, climbed by 0.6% in August after being flat in July.
Good economic news has been bad for stocks lately because investors are concerned that the Federal Reserve will give interest rates another boost to cool the economy. The Fed has already raised rates five times this year.
A morning of mild price changes gave way to a sharp slide midday.
The upbeat economic data has led many investors to think that the Federal Reserve may not wait until its next meeting in November to raise rates again.
Analysts said a strong September jobs report Friday could be enough to prompt a rate increase by the central bank.
The semiconductor and other technology stocks were especially hard-hit in the selloff.
The Nasdaq composite, weighted with technology stocks, plunged 13.58 points to close at 747.30.
Among the market highlights:
* Cyrix Corp. fell 4 3/8 to 38, clipped by a Cowen & Co. downgrade. Intel Corp. dropped 2 1/4 to 58, Advanced Micro Devices sank 1 3/8 to 25 1/8 and Texas Instruments lost 2 1/8 to 64.
* American Express rose 1/4 to 30 1/4 in heavy trading. The company said a review of its cost structure was under way.
* Marion Merrell Dow gained 2 1/4 to 26 on renewed speculation that the drug company might be a takeover target.
* Landmark Graphics dropped 6 1/8 to 17 1/8 after saying its earnings and revenues for the quarter ended Sept. 30 would be below Wall Street expectations.
* L.A. Gear fell 3/4 to 7 after the clothing maker said third-quarter earnings declined on an increased proportion of children’s products sales and excess inventory.
Overseas stocks ended mixed. In London, the Financial Times 100-share average rebounded 18.3 points to 3,001.8. Frankfurt’s DAX 30-share average retreated to 1,994.95, down 16.8 points on the day. In Tokyo, the 225-share Nikkei average ended down 81.42 points to 19,568.61, and Mexico City’s dropped 15.99 points to 2,670.02 points.
Interest Rates
30-year T-Bond: 7.88%
1-year T-Bill: 6.01%
