FINANCIAL MARKETS : Housing News, Trade Fears Shove Dow Down 34 Points
Profit takers took control of stock and bond markets Monday in the wake of another economic report hinting at fresh economic strength.
The Dow industrial average dropped 34.59 points to 4,551.25 in relatively slow trading, as bond yields moved up across the board.
Traders focused on news of a bigger-than-expected rise in existing home sales in May. Coupled with last Friday’s government report of a rebound in durable goods orders in May, the numbers suggest that the U.S. economy could be reviving after a weak winter and spring.
Because the rally in financial markets in recent months has been largely based on expectations that the Federal Reserve Board will soon cut short-term interest rates, any indications to the contrary would naturally be poorly received on Wall Street.
“The market is going to wait on pins and needles until” the Fed decides at its July 5-6 meeting whether to lower rates, said Timothy Jay, head of U.S. government bond trading at Lehman Bros.
In the bond market Monday, sellers pushed the yield on the 30-year Treasury bond to 6.55%, up from 6.49% on Friday.
The two-year T-note yield jumped to 5.71% from 5.62%.
Rising bond yields undercut a stock market also suffering from jitters over the bitter U.S.-Japan trade dispute. The Clinton Administration says that unless the two countries can agree by Wednesday on new efforts to open Japan’s auto market, the United States will impose 100% import duties on Japanese luxury cars--which could start a trade war with Japan.
“If the situation with Japan deteriorates, it will be a major negative for the market,” predicted Michael Metz, analyst at Oppenheimer & Co. in New York.
Still, Monday’s decline in stock prices was statistically minor.
Although losers outnumbered winners by 7 to 3 on the New York Stock Exchange, most major stock indexes fell only about 1%. Among the worst-hit indexes was the Nasdaq composite, which gave up 1.3%--yet still is up 23% this year.
Many analysts have warned that a pullback of 5% or more in key indexes is overdue, given the magnitude of this year’s rally.
Among Monday’s highlights:
* Recently hot technology issues led the losers list. Compaq fell 1 1/2 to 43 3/8, Dell dropped 2 1/4 to 59 3/8, Advanced Micro Devices lost 2 to 36 7/8, Cirrus Logic fell 2 3/8 to 64 5/8 and BMC Software lost 3 to 77 1/4.
Some analysts are worried about an inventory buildup of personal computers that use the Intel 486 microprocessor.
* Financial and utility stocks weakened as interest rates rose. The Dow utility index fell 1.1%.
* Walt Disney slid 2 1/2 to 57 after its film “Pocahontas” fared worse than expected last weekend.
* Among HMOs, Coventry plummeted 7 3/4 to 14 after it warned of disappointing earnings this quarter. Other HMO losers included Humana, down 1/2 to 18 7/8; Oxford Health, off 4 1/8 to 52 1/4, and PacifiCare A, down 3 1/4 to 54 1/4.
Overseas, London’s FTSE-100 index dropped 70.2 points to 3,309.2 as investors were gripped by political worries. Tokyo’s 225-share Nikkei average eased 119.82 points to 15,145.36. But Mexico’s Bolsa index continued to advance, rising 33.30 points to 2,086.47.
