FINANCIAL MARKETS : Economic Data Leaves Stocks, Bonds Mixed
Government reports indicating economic expansion with only mild inflation left the bond and stock markets mixed Tuesday.
Shorter-term interest rates rose on the assumption that the economy’s continued growth makes it likely the Federal Reserve Board will tighten credit again soon.
But long-term bond yields, which respond more to the inflation outlook, fell after the government reported that November wholesale inflation was in line with expectations--and apparently under control.
In the stock market, the Dow Jones industrial average eased 3.03 points to 3,715.34, but winners topped losers by 11 to 9 in active trading on the NYSE. Most broader market indexes rose.
The bond market’s split personality was evident in the changes in yields on one- and 30-year Treasury securities.
The one-year T-bill yield rose to 7.33% from 7.29% on Monday, while the 30-year T-bond yield dropped to 7.85% from 7.92%.
In economic news, the Commerce Department reported a larger-than-expected 1.2% rise in retail sales in November, a sign of healthy consumer spending.
“The implication of strong retail sales is that we’ll see continued strong economic growth in the fourth quarter,” said Rusty Vanneman, senior money market analyst at Technical Data. “That means the Fed will probably tighten (short-term) rates soon.”
Meanwhile, the Labor Department said wholesale prices rose 0.5% in November, after declining for two months. Despite the increase, analysts said wholesale prices in general did not appear poised to rise sharply, even as the economy grows.
“Can we have steady growth without inflation? It certainly looks like it,” said Andrew Brenner, senior trader at Nomura Securities.
The stock market, however, is having trouble deciding whether the benefits of lower long-term yields offset the negatives of higher short-term rates, analysts say.
Among the market highlights:
* Bank stocks rebounded, drawing strength from optimism that interest rates overall may be close to peaking. J.P. Morgan rose 3/4 to 59 1/8, Mellon Bank climbed 1 to 31 3/4, Wells Fargo surged 2 5/8 to 146 1/2 and Bankers Trust gained 1 3/4 to 58 7/8.
* Intel inched up 1/8 to 60 1/2 after tumbling 2 3/8 on Monday on news that IBM was halting shipments of personal computers that use Intel’s flawed Pentium chip.
* US Bioscience fell 4 3/8 to 2 after a Food and Drug Administration advisory committee recommended late Monday against approval of Ethyol, a drug developed to treat the side effects of chemotherapy.
In foreign markets, uncertainty over the simmering revolt in Chiapas state sent Mexican stocks tumbling. The Bolsa index sank to 2,407.99, off 59.8 points and its lowest closing level in four months.
In Tokyo, the 225-share Nikkei average closed down 99.62 points at 18,875.48. In Frankfurt, the DAX index eased 13.57 points to 2,011.25. London’s FTSE-100 index added 3.0 points to 2,946.4.
Market Roundup, D6
