FINANCIAL MARKETS : Stocks Mixed as Short-Term Yields Rocket
The stock market meandered to a mixed close Wednesday as short-term interest rates surged on new economic reports.
Long-term Treasury bond yields, meanwhile, eased slightly for the first time in three days, despite the rise in short rates. Municipal bonds rallied sharply.
On Wall Street, the Dow industrials added just 0.68 point to 3,739.23 after rising more than 20 points early on.
Traders said stock investors appeared confused by the bond market’s split decision on the latest economic reports.
Yields initially rose across the board after the Commerce Department said the nation’s gross domestic product rose at a 3.9% annual rate in the third quarter, 0.5 point higher than an earlier estimate. Inflation measures in the report were also revised upward.
But long-term bond yields fell back later, after the government revised its report on October factory capacity utilization to 84.6% from 84.9% originally. That suggested that the economy’s strength may have ebbed somewhat as the fourth quarter began.
In response, the 30-year Treasury bond yield eased to 8.0% on Wednesday from Tuesday’s 8.03%.
Municipal bonds also rallied. Analysts said insurance companies and other institutional buyers have been attracted by what they regard as abnormally high tax-free yields on long-term muni securities.
The bad news Wednesday was in the market for shorter-term securities. Short-term Treasury yields reached new 3 1/2-year highs as investors in those securities appeared to bet that the Federal Reserve Board isn’t yet finished raising short rates to restrain the economy.
That sentiment was bolstered by higher November inflation statistics in a Chicago-area survey of corporate purchasing managers.
The report “raises the odds the Fed is going to have to raise rates sooner rather than later,” said Marco Frustaci, trader at Daiwa Securities America.
The yield on three-month T-bills, 5.45% as recently as Nov. 21, soared to 5.72% on Wednesday from 5.68% on Tuesday.
One-year T-bill yields jumped to 6.89% from 6.80% on Tuesday, nearing the 7% mark. A year ago, the one-year yield was just 3.5%.
Some stock traders said the equity market held up surprisingly well given the surge in short-term yields. Though broad market indexes were mixed, advancing issues led declines by 12 to 10 on the New York Stock Exchange and by 17 to 12 on Nasdaq. Trading was active.
But analysts say many investors are waiting for today’s Senate vote on the General Agreement on Tariffs and Trade, and on Friday’s report on November employment, before making additional moves.
“A lot of people are just sitting back and waiting to see what Thursday and Friday are going to bring,” said Alice Sadlo, first vice president at McDonald & Co.
Among Wednesday’s highlights:
* Some industrial issues rallied, which a few analysts attributed to optimism over GATT and future global sales prospects for large U.S. multinational firms.
Winners included Dow Chemical, up 1 to 64; Goodrich, up 3/4 to 44 1/2; Monsanto, up 1 1/8 to 72; Cummins Engine, up 1 1/8 to 43 1/2, and Georgia-Pacific, up 1 5/8 to 71 1/2.
Also in the industrial area, Chrysler rose 1 to 48 1/2 amid expectations that its board will raise the dividend on its common stock at a meeting today.
* Tech stocks, the market’s recent leaders, were mixed. Lotus Development leaped 3 to 44 3/4 on renewed market rumors that Oracle Systems may make a bid. Oracle fell 1 3/8 to 41 1/4.
But Intel tumbled 2 3/8 to 63 1/8 on rising worries about glitches in its Pentium computer chip. Other falling tech issues included Compaq, down 1 1/4 to 39 1/8; Apple, off 1 to 37 1/4, and Dell Computer, down 1 13/16 to 43 1/16.
Also, Applied Materials dove 4 5/8 to 47 7/8 after its latest quarterly earnings failed to top expectations.
Another loser was semiconductor maker Level One Communications. It plunged 4 1/2 to 12 1/4 after analysts warned that the firm’s bookings appear to be running behind expectations.
* In the deals arena, Apache soared 2 7/8 to 28 after it agreed to buy more than 300 Texaco oil fields for $600 million.
Overseas, Tokyo’s 225-share Nikkei stock average closed at 19,075.62, up 149.13 points. Frankfurt’s 30-share DAX average edged up 3.98 points to 2,048.26 while London’s FTSE 100 index gained 20.3 points to 3,081.4.
In Mexico City, the Bolsa index closed 4.82 points lower at 2,591.34 after President-elect Ernesto Zedillo made some surprise Cabinet appointments that disappointed investors.
Meanwhile, in U.S. commodities trading, silver futures hit their lowest level in nearly a year when a price slide linked to waning inflation fears steepened dramatically. Gold futures also fell.
Silver for December delivery dropped 14.9 cents on the New York Merc to $4.90 an ounce, the lowest since Dec. 7, 1993.
December gold futures fell $1.30 to $380.70 an ounce.
Weakness in a host of other commodities, including soybeans, heating oil, orange juice and coffee, drove down the Commodity Research Bureau’s index of 21 commodities 1.24 points to 229.34.
