FINANICIAL MARKETS : Mood Report Boosts Yields; Dow Slips 1.01
The bond market’s short-lived rally of last week gave way to renewed selling on Tuesday, as investors responded to a surprise surge in consumer confidence.
Meanwhile, the dollar advanced strongly, and the stock market shook off an early decline to close mostly higher despite rising interest rates.
Bond prices slumped for a second consecutive day after the Conference Board reported a sharp jump in consumer confidence this month, to a four-year high.
Though many analysts disputed the accuracy of the confidence index, the bond market viewed it as another sign of a robust economy--which could eventually mean further official interest rate hikes by the Federal Reserve Board.
In fact, Fed Vice Chairman Alan Blinder may have hinted as much when he said Tuesday that the U.S. economy is “extremely strong.”
Unnerved again, bond traders sent the yield on the Treasury’s 30-year bond rising from 7.98% on Monday to 8.03% Tuesday, the highest in a week. Last week, the bond’s yield plunged from 8.13% to 7.94% as some investors rushed into the market, betting that the economy was finally on the verge of slowing.
The confidence report “shoots down the whole argument that we were hearing last week that the economy’s going down the tubes and everybody’s going to sell stocks and buy bonds,” said James Hale, senior strategist at MMS International in San Francisco.
Short-term yields rose even faster than long-term yields on Tuesday. The six-month T-bill yield soared to a 3 1/2-year high of 6.20% from 6.13% on Monday.
The stock market, which had tumbled last week on economic worries, held up remarkably well Tuesday even as bond yields surged. The Dow industrials recovered from a 20-point loss to close off just 1.01 points at 3,738.55, after rising 31.29 points on Monday.
The broad market looked even better Tuesday: Winners edged losers on the NYSE, and most major stock indexes gained ground. Buying was strong in the Nasdaq market of mostly smaller stocks, where the composite index jumped 5.75 points to 751.48. It had plunged a net 22.15 points last week.
“It’s still a market that’s quite tentative although there is some upside potential,” said James Solloway, analyst at Argus Research.
But traders warn that ever-rising short-term yields, such as on bank CDs, are likely to continue drawing dollars away from the stock market. Indeed, major mutual fund companies reported Tuesday that stock fund inflows have fallen sharply this month.
Elsewhere, in currency trading Tuesday the dollar rose broadly, reaching its highest level against the Japanese yen since mid-October. Traders credited growing faith in the U.S. economy’s expansion.
In New York, the dollar closed at 98.97 yen, up from 98.68 Monday. It also rose to 1.571 German marks from 1.567 Monday.
Among Tuesday’s highlights:
* Tech stocks continued to lead the market rebound. Gainers included Lotus Development, up 1 1/4 to 41 3/4; Sybase, up 2 1/2 to 49 1/2; Parametric, up 2 to 35 1/4; and Hewlett-Packard, up 1 1/2 to 99 1/2.
* Many health-care issues also rose again. Wellpoint Health jumped 1 to 29 5/8, Centocor gained 1 3/8 to 17 7/8, Biogen leaped 2 1/2 to 38 3/4 and Lilly added 1 to 61 1/8.
* Some transportation issues recovered. Conrail surged 1 3/8 to 52 1/8, Southwest Airlines added 1/2 to 21 3/4 and Burlington Northern was up 1 to 48.
* On the downside, MCI Communications dropped 1 1/2 to 19. Merrill Lynch lowered its near-term and long-term ratings of the stock, citing slowing expansion of MCI’s long-distance business.
Overseas, Tokyo’s 225-share Nikkei average ended up 115.13 points at 18,926.49. London’s FTSE-100 index added 14.0 points to 3,061.1, while Frankfurt’s DAX index eased 14.17 points to 2,044.28.
In Mexico City, the Bolsa index rose 33.33 points to 2,596.16.
* Market Roundup, D4
