FINANCIAL MARKETS : Markets Take a Breather on Election Eve
Financial markets showed little movement Monday awaiting today’s general elections and a heavy calendar of new bond issuance.
Stocks closed mixed, with the Dow industrial average inching up 1.35 points to 3,808.87 after last week’s 123-point decline. But the broad market was decidedly negative: Losers beat winners by 14 to 8 on the New York Stock Exchange in slow trading.
In the bond market, yields rose slightly on long-term issues. The 30-year Treasury bond yield hit a new 3-year high of 8.16%, up from 8.15% on Friday.
Yields had jumped Friday after the government issued a strong October employment report, signaling that the economy remains robust despite five interest-rate hikes by the Federal Reserve Board this year.
Analysts said the employment report virtually assures another rate increase when the Fed meets next Tuesday. The only debate is whether the central bank will boost rates by half a point, or opt for a bigger increase to try and rein in the economy and inflation pressures.
In any case, with no apparent end in sight to the Fed’s credit-tightening moves, analysts say bond traders have no reason to believe that bond yields are ready to stabilize.
“We’re in a bear market, and there’s just no question that yields are going to keep grinding and grinding and grinding upwards,” said Fabio Savoldelli, who oversees $1.4 billion in bonds at SBC Portfolio Management International.
Worse, bond traders face a glut of new supply this week. Today, the Treasury will sell $17 billion in new three-year notes. On Wednesday it will sell $12 billion in new 10-year notes.
Analysts said the municipal bond market in particular has been suffering a backlash of selling in the wake of rising market yields.
Yields on municipal bonds rose for a sixth day as fund managers found it difficult to find buyers. Traders said many muni bond mutual funds appear to be experiencing redemptions by investors, forcing fund managers to dump bonds.
“Liquidity is the main concern of the market,” said Joseph Piraro, who manages about $2 billion in tax-exempt bonds for Van Kampen Merritt Inc.
On Wall Street, stock investors took to the sidelines despite widespread expectations that Republican candidates will sweep today’s elections. Many analysts have argued in recent weeks that a Republican victory would be bullish for the market by promising lower taxes and smaller government.
But Rao Chalasani, chief investment strategist at Kemper Securities, said many investors want to wait to see how significant a rate increase the Fed delivers next week, rather than speculate on a big Republican victory and what that may or may not mean.
“The feeling is why not wait it out,” Chalasani said.
In addition, while corporate earnings growth has been stellar this year, “There’s some thinking that we may be peaking here soon” if higher interest rates begin to clip economic growth, said John Church, chief investment officer at Glenmede Trust Co.
Among Monday’s highlights:
* Many technology issues showed some strength. IBM, Apple Computer and Motorola said they agreed on a new hardware platform design for computers based on the PowerPC chip. IBM rose 3/4 to 71 7/8 and Apple added 3/8 to 40 3/4, but Motorola lost 2 to 56 1/2.
Also, Dell Computer jumped 2 1/8 to 43 7/8 after it introduced its first multiprocessor network servers.
* Chrysler lost 7/8 to 46 1/2 after trading as low as 45 1/2, on speculation that investor Kirk Kerkorian will begin selling off his 9.2% stake in the No. 3 auto maker.
* Among the day’s winners, Nike rose 1 7/8 to 61 1/2. Goldman Sachs added the stock to the firm’s “recommended” list, while CBS jumped 2 7/8 to 58 1/2 on renewed takeover rumors.
* NYSE-traded South Korean issues rose as the South Korean stock market hit a record high. Korea Fund surged 1 1/4 to 26 1/8 and Korea Electric leaped 1 5/8 to 21 3/4.
Overseas, corporate selling and arbitrage-linked sales sent Tokyo’s 225-share Nikkei average down 192.34 points to 19,619.22.
In Frankfurt, the DAX average dropped 24.04 points to 2,043.52, while London’s FTSE 100 index sank 31.8 points to 3,065.8. In Mexico City, the Bolsa index drifted up 6.71 points to 2,588.35.
