FINANCIAL MARKETS : Bond Yields Fall on Rate-Cut Hopes
The bond market resumed its rally Wednesday as investors responded hopefully to Federal Reserve Board Chairman Alan Greenspan’s latest pronouncements on the economy.
But the stock market stalled, with major indexes closing modestly lower. The Dow industrials eased 3.46 points to 4,547.10.
In a speech late Tuesday, Greenspan said growth is slowing, but he stopped short of saying another cut in short-term interest rates is needed to stimulate the economy.
Nonetheless, bond investors seemed to interpret Greenspan’s remarks as boosting the chances of a Fed rate cut.
“I was amazed Chairman Greenspan went so far as to say a small recession is actually possible,” said Sung Won Sohn of Norwest Corp., a Minneapolis bank. “I can’t remember the last time a sitting chairman more or less predicted a recession.”
“I came away from the speech feeling the odds are quite high that the Fed will ease at its next meeting,” said Darwin Beck, economist at CS First Boston.
Bond yields fell across the board Wednesday. The 30-year T-bond yield slid to 6.54% from 6.58% on Tuesday. The six-month T-bill yield fell to 5.65% from 5.70%.
Greenspan’s comments also depressed the dollar, traders said.
In the stock market, advancing issues outnumbered losers by 11 to 10 on the New York Stock Exchange even though most indexes fell. Volume was heavy at 398 million shares.
Among the market highlights:
* Investors took some profits in the red-hot technology sector. Micron Technology fell 3 to 54 3/4, IBM eased 5/8 to 97 1/8, Advanced Micro Devices slid 1 1/8 to 35 3/8, Texas Instruments was off 4 1/2 to 138, Xerox gave up 2 1/4 to 117 1/8 and Compaq dipped 1 1/4 to 44 1/8.
* Oil stocks plummeted as crude prices continued to fall on fears of rising supplies. Crude futures for August lost 51 cents to $17.46 a barrel, the lowest since Jan. 10.
Among oil stocks, Mobil fell 1 5/8 to 96 5/8, Atlantic Richfield lost 1 1/2 to 112 3/8, Exxon fell 7/8 to 69 1/4, Phillips sank 1 3/8 to 32 3/4 and Unocal was off 7/8 to 28 1/8.
Oil services shares also slumped, led by Schlumberger, down 3 3/8 to 61 5/8.
* In another indication of the toll the weakened economy is taking on some firms, appliance giant Whirlpool said its current-quarter earnings will be sharply lower. The stock dove 2 5/8 to 53 3/8.
Also, Quaker Oats fell 1 3/8 to 33 3/8 after warning of disappointing sales at its Snapple division.
* On the plus side, some brokerage stocks surged after Lehman Bros. reported higher-than-expected second-quarter earnings. Lehman rose 1/2 to 22 3/8, and many of its competitors’ shares were much stronger.
Charles Schwab jumped 2 5/8 to 43 1/4, Morgan Stanley gained 2 7/8 to 82 3/4 and Travelers, parent of Smith Barney, was up 7/8 to 43 1/4.
* Drug stocks shot higher after Schering Plough gave an upbeat earnings outlook. Schering rose 1 3/4 to 43 1/4, Pfizer surged 2 5/8 to 91 5/8, Lilly jumped 1 7/8 to 76 3/4 and Merck was up 1 1/8 to 49 1/8.
In commodities trading, another surge in grain prices because of hot Midwest weather helped push the Commodity Research Bureau index up 0.85 point to 237.50, near its 1995 high, despite the downward pull of oil and lumber prices.
In foreign markets, Tokyo’s 225-share Nikkei average gained 285.51 points to end at 14,951.21. Mexico’s Bolsa index added 16.35 points to 2,018.60.
Market Roundup, D8
* SURPRISING SALE
L.A. County note offering goes better than expected. A22
