FINANCIAL MARKETS : Stocks Do U-Turn in Last Hour; Bonds Rally
A strong stock rally shifted abruptly into reverse in the final hour, wrenching major averages into negative territory in heavy trading and killing hopes for a third-straight record-breaking session.
But bonds rallied sharply as yields plunged for a second straight day to one-year lows on hopes for a sluggish employment report today.
At the end of the day, the Dow Jones industrial average settled 13.49 points lower at 4,359.66 after surging 38 points, past the 4,400 mark in intra-day trading. It turned sharply lower late in the day, diving nearly 63 points to minus 24 before recouping some losses.
As of Wednesday, the blue-chip average had gained more than 700 points, or nearly 20%, since Thanksgiving, and nearly 6% since April 1.
The yield on the Treasury’s benchmark 30-year Treasury bond fell to 7.16%, down from Wednesday’s 7.23%. It was the long-bond’s lowest closing yield since it fell to 7.10% on April 26, 1994. Its price, which moves inversely to the yield, jumped another 29/32 point, or $9.06 per $1,000 in face value.
Stock traders said the late selloff began in the futures pits and then spread to the cash market, as stock values soared so high that investors couldn’t resist selling to take profits.
The Standard & Poor’s 500-stock index managed a 0.06-point increase to close at 520.54, topping its record high of 520.48 set on Wednesday.
But other broad-market indexes closed lower. The New York Stock Exchange’s composite index fell 0.03 point to 279.91, and the Nasdaq composite index slipped 3.51 points to 846.75. The American Stock Exchange market value index lost 0.95 point to 482.42.
Advancing issues outnumbered decliners by 1,158 to 1,111 on the NYSE. Big Board volume was the sixth largest on record, totaling 436.05 million shares, up from Wednesday’s 392.89 million.
Stocks surged early in the session with bonds, after another report of slow economic growth made the prospect of higher interest rates more remote.
The Labor Department said first-time unemployment claims rose by 20,000 to 371,000 last week, the highest level since July.
Most analysts had expected the growth in claims to remain steady at about 350,000, and many had thought claims had fallen by about 4,000. The data was seen as a possible indication that April jobs figures, due out on today, will be soft as well.
Among the markets highlights Thursday:
* The Dow was led lower by Philip Morris, which dropped 2 to 70 5/8. Salomon Brothers downgraded the tobacco and food conglomerate’s shares to “hold” from “buy.”
* Philip Morris was followed by Alcoa, down 1 3/4 to 43 7/8; General Motors, down 1 3/8 to 43 1/4, and Caterpillar, down 1 1/8 to 56 3/8.
* Technology and computer-related shares showed strength across the board for most of the day, and some ended higher. National Semiconductor rose 1/2 to 25 1/4, Intel surged 2 1/2 to 109 7/8, and Texas Instruments was up 3/4 to 110 7/8.
* The shares of financial companies also soared as interest rates fell. Lower short-term rates typically help these companies by widening their profit margins. Citicorp rose 1 3/8 to 48 5/8.
* United Health Care fell 3 1/4 to 34 5/8 after reporting earnings that were below analysts’ consensus estimate of 52 cents.
* FHP International fell 3 1/8 to 19 3/4 after reporting earnings below analysts’ estimates and Salomon Inc. downgraded the stock to “hold” from “buy.”
* Firefox Communications surged 10 to 28 as investors scooped up the company’s 2.3 million initial share offering.
* Argentine oil company YPF SA fell 1 to 20 1/4 as investors reacted to news that the company’s chief executive, Jos Estenssoro, is believed to have died in a plane crash.
Overseas markets were mixed. Germany’s 30-share DAX average ended up 16.11 points at 2,044.79, and London’s Financial Times 100-share average closed at 3,264.3, up 1.7 points. Mexico’s Bolsa index finished down 12.00 points at 2,007.57. Japanese Financial markets are closed until May 8 because of national holidays.
Meanwhile, the dollar moved higher against the yen for the third straight day, as the market watched for a breakthrough in high-level trade talks between the United States and Japan. The dollar retreated against the German mark.
