FINANCIAL MARKETS : Rate Worries Spur Broad Stock Decline
U.S. stocks lost ground again on Friday, capping a disappointing week in which renewed interest-rate concerns halted the market’s month-long rally.
The Dow industrials fell 12.78 points to 3,869.43 after being down as much as 35 points earlier in the day. For the week the Dow lost 39.03 points.
In the broad market losers outnumbered winners by about 2 to 1 for a second straight day on the New York Stock Exchange, in heavy trading that was influenced by the regular expiration of certain stock index futures contracts.
The stock market’s negative tone was set by the bond market, where yields rose across the board Friday after the government reported that December’s pace of housing construction slowed by 1%--far less than what was expected given last year’s rise in mortgage rates.
Also, the National Assn. of Purchasing Management revised its December price index upward, signaling greater inflationary pressures for industrial goods.
Both reports suggested that the Federal Reserve Board may be compelled to raise short-term interest rates again at the end of this month, and perhaps by more than the half-point that Wall Street had widely been expecting.
Responding to rate worries, the yield on the 2-year Treasury note rose to 7.50% Friday from 7.46% on Thursday, and now is the highest since Jan. 12. The 30-year T-bond yield jumped to 7.88% from 7.82%.
On Wall Street, many investors have been unethused about strong fourth-quarter corporate earnings reports, fearing that renewed interest-rate hikes could slow the economy so much that earnings growth fades for key industries.
“The sense of peaking earnings momentum is starting to be realized by investors,” said Peter Canoni, director of equity research at Aeltus Investment Management.
Indeed, auto stocks led the market lower Friday, after reports that auto makers are slowing production because sales of some models have been lackluster.
Among Friday’s highlights:
* The Big Three auto shares all fell, with Ford down 1 1/8 to 26 3/8, Chrysler off 2 1/8 to 47 1/8 and GM down 3/4 to 39 1/2. Parts suppliers also fell. Goodyear lost 3/4 to 36 1/2, Superior Industries eased 3/8 to 26 3/8 and Eaton dropped 1 1/4 to 49 1/2.
* Morgan Stanley plunged 3 7/8 to 59 after the brokerage warned that fourth-quarter earnings would be well below expectations, a victim of difficult financial markets. Other brokers fell as well, including Salomon, down 1 1/4 to 37 5/8, and Merrill Lynch, off 7/8 to 36 3/8.
* Profit-takers slammed technology stocks. Apple Computer slumped 3 1/4 to 42 5/8 despite quarterly earnings that beat analysts’ forecasts. Also, IBM dropped 1 1/8 to 75 3/8, Sybase lost 4 3/4 to 47 1/2 and Data General sank 1 3/4 to 9 1/8.
* Nabisco Holdings, a spinoff of RJR Nabisco’s food business, went public at 24 1/2 and jumped to close at 26 7/8 on the NYSE, a strong response to the new share offering in an otherwise weak market.
In Latin America, Mexico City’s Bolsa stock index closed up 13.96 points at 2,065.85 after tumbling more than 2% early in the session amid concern that the U.S. Congress might not approve $40 billion in loan guarantees for Mexico. Other Latin markets also closed with small gains.
Major world markets had bad days: In Tokyo, the 225-share Nikkei average sank 235.52 points to 18,840.22, while Frankfurt’s DAX index dropped 33.78 points to 2,055.58 and London’s FTSE-100 index slid 33.6 points to 2,995.0.