FINANCIAL MARKETS : Concern Over Interest Rates Quells Rally in Stocks, Bonds
Early rallies in stock and bond markets ran out of steam late Tuesday as interest rate jitters and trade war fears got the best of market players.
The Dow industrial average eased 8.64 points to 4,542.61 after advancing as much as 20 points early in the day. Technology stocks and health care issues led the broad market lower for a second straight day.
The bond market again set the tone for stocks. Yields fell initially, responding to the Conference Board’s report that consumer confidence tumbled in June.
That was considered more ammunition for economists who believe the Federal Reserve Board should cut interest rates in July to keep the weak economy from falling into recession.
In the afternoon, however, tepid bidding at the Treasury’s auction of new two-year notes cast a chill over the bond market. The notes were sold at an average yield of 5.69%, the lowest in more than a year but still slightly above some traders’ expectations.
A total of $42.3 billion in bids was received for the $17.75 billion in notes sold.
The Treasury will sell five-year notes today.
The bond market was also disturbed by stronger-than-expected retail sales figures in the weekly Johnson Redbook report on store trends, some traders said.
Even so, yields finished only modestly higher on short-term securities, and the 30-year T-bond yield actually eased to 6.54% from 6.55% on Monday.
The stock market nervously eyed the bond market’s gyrations all day, along with the U.S.-Japan trade talks, traders said. At the close, losers outnumbered winners by 11 to 10 on the New York Stock Exchange in active trading of 347 million shares.
If the trade talks fail today and the Clinton Administration imposes sanctions on Japanese cars, some analysts fear heavy fallout on Wall Street.
“It’s weighing heavily on people’s minds,” said Jim Macko, vice president in trading at McDonald & Co. Failure to reach an agreement “would have ramifications in more than just the auto area. It would have a big impact on trade.”
Among Tuesday’s highlights:
* Recently streaking technology issues were pounded for a second day by profit takers. Intel lost 2 3/8 to 62 5/8, IBM sank 2 7/8 to 95 3/8, Microsoft dropped 2 7/8 to 86 7/8, Sun Microsystems fell 2 3/8 to 47 1/8 and Alantec dropped 1 3/8 to 33 5/8.
But Spyglass, whose software helps users browse the Internet, went public at 17 and rocketed to close at 27 1/8 on Nasdaq.
* Many health care issues continued to slide. HMOs in particular were hit for a second day on worries about second-quarter earnings. U.S. Healthcare lost 1 1/8 to 31 7/8, Wellpoint fell 3/4 to 28 1/2, PacifiCare A tumbled 5 1/2 to 48 3/4 and Humana gave up 1 to 17 7/8.
* Paper and lumber stocks gave ground after a run-up last week. Weyerhaeuser fell 1 to 45 1/2, International Paper sank 1 1/2 to 81 and Boise Cascade slid 1 3/8 to 36 1/2.
* Disney remained under pressure on disappointment over the box office draw of its movie “Pocahontas.” It lost 7/8 to 56 1/8 after Cowen & Co. lowered its rating on the stock to “neutral” from “buy.”
* On the plus side, metal stocks were higher, perhaps on growing optimism about the economy. Inland Steel rose 1 1/4 to 29 7/8, Alumax jumped 1 1/8 to 30 3/4 and USX-U.S. Steel rose 7/8 to 34 3/8.
* Oil stocks also rebounded. Mobil surged 1 3/8 to 97 1/2, Atlantic Richfield gained 1 1/4 to 113 1/8 and Phillips rose 3/4 to 33 3/8.
In foreign trading, Tokyo’s Nikkei 225-share average plummeted 386.31 points to close at 14,759.05 on economic worries.
In Frankfurt, the 30-share DAX average fell 8.01 points to 2,122.40 and London’s FTSE-100 average ended at 3,313.2, off 4.0 points.
But in Mexico, the Bolsa advanced again, gaining 26.23 points to 2,112.70--highest since Jan. 18.
