Dow Finishes Flat After Thursday’s Dive; Bond Yields Edge Up
Most broad stock indexes closed only marginally lower Friday after Thursday’s steep plunge, allaying some fears that the market was headed for a painful selloff.
But traders cautioned that the regular monthly expiration of some stock option and futures contracts may have skewed activity and that a renewed upward creep of bond yields could keep stocks under pressure next week.
The Dow Jones industrial average, which had plummeted 81.96 points on Thursday in the biggest one-day drop since November, inched up 0.69 point to 4,341.33.
The Dow began the day sharply lower in a continuation of Thursday’s slide. The blue-chip index was down 27 points at 10 a.m. EDT and remained in negative territory for most of the day.
Near the close, however, the expiration of key stock options and futures appeared to force some traders to be buyers in order to close out previously made market bets.
Thursday’s late selloff was also said to have been partly tied to options and futures trades. But some analysts said that any time the market suffers a big setback, fundamental reasons are likely to be at the heart of it.
“I think this is the start of a consolidation or correction” after the stunning rally of recent months, said Andrew Addison, a technical market analyst in Franklin, Mass. He thinks the Dow could fall as low as 4,250 in coming weeks.
Analysts noted that while the Dow was up slightly Friday, falling stocks outnumbered rising issues by 1,321 to 888 on the New York Stock Exchange. The Standard & Poor’s 500-stock index of blue-chip stocks was off 0.39 point at 519.19.
Still, one of the highest-flying market sectors--technology--wasn’t hit by significant profit taking Friday, suggesting that many investors remain reluctant to sell stocks even after this year’s surge.
“What didn’t happen is things didn’t fall apart,” said Lou Ehrenkrantz of Ehrenkrantz King Nussbaum. “As long as the group that [has] led the advance, the techs, hold up, this market has strong underpinnings.”
But some analysts said a weakening bond market, which unnerved some stock investors Thursday, could cause more trouble next week.
On Friday, bond yields rose modestly for a third straight day as investors focused on a growing supply of new bonds in the market. The Treasury will sell two- and five-year notes next week.
The yield on two-year T-notes closed at 6.19%, up from 6.15% on Thursday and 6.08% on Tuesday. The 30-year T-bond yield closed at 6.92%, up from 6.89%.
“You’re having some indigestion in the market,” said James Ho, who manages $3 billion of bonds at the John Hancock Funds in Boston.
Among Friday’s highlights:
* Classic growth stocks led the Dow’s rebound, as some investors searched for a safe haven. Philip Morris rose 7/8 to 69 1/4, Coca-Cola jumped 1 1/8 to 58 3/8 and Merck added 3/4 to 42.
* On the downside, some industrial issues remained under pressure. Caterpillar fell 1 1/8 to 59 3/4, Dover lost 1 to 66 3/8, Rockwell sank 1 5/8 to 43 1/4, Parker-Hannifin gave up 1 1/4 to 53 1/8 and Emerson Electric dropped 3/4 to 68 1/4.
But Alcoa surged 1 1/4 to 47 and Inland Steel added 3/8 to 28 5/8.
* Technology stocks continuing to advance included Intel, up 5/8 to 111 3/8; Sun Microsystems, up 1 1/8 to 45; Cabletron Systems, up 2 to 52 1/2, and Lotus, up 1 1/2 to 34 1/2.
* Among Southland issues, Callaway Golf leaped 1 3/4 to 14 in heavy trading, on rumors that American Brands is preparing a takeover offer for the company. Callaway said it is not in takeover talks.
Overseas, most foreign markets fell, reacting to the U.S. market’s slump Thursday. London’s FTSE-100 index lost 0.8% and Frankfurt’s DAX index sank 1%, while Hong Kong’s Hang Seng index slumped 1.1%. But Mexico’s Bolsa index eased just 2.5 points to 2,012.26 after an early tumble.
Market Roundup, D3
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Interest Rates:
30-year T-Bond: 6.92%
1-year T-Bill: 5.99%
Selected Interest Rates
Averages of daily rates ended Thursday, in percent
Corporate AAA bonds: 7.62%
90-days CDs: 6.03%
3-month Treasury bills: 5.68%
Bank prime rate: 9.00%
Federal funds rate: 6.02%
Discount rate: 5.25%
Municipal bonds: 5.96%
