FINANCIAL MARKETS : Stocks, Bonds Hit as Hopes for Cut Dim
Stocks fell Friday in tandem with a sharp rise in bond yields, as conflicting signals in government reports indicated a sluggish economy and lowered hopes for an interest rate cut next month.
The Commerce Department said the nation’s gross domestic product grew by an anemic 0.5% in the three months ended June 30, slowed by inventories and housing investment.
While that was in line with economists’ expectations, it was much softer than the growth reported for the two previous quarters. But bond yields still rose on signs of a modest recovery in the figures and in a survey of consumer confidence.
The Dow Jones industrial average lost 17.26 points to close at 4,715.51. Losers squeaked by gainers on the New York Stock Exchange.
Volume was moderately heavy and most broad market indexes took a beating as well.
Clinton Administration officials dashed hopes of lower interest rates by saying publicly that the data was not a surprise. Bonds reacted, with the 30-year Treasury bond yield rising to 6.90% from 6.84% on Thursday.
“The stock market is not priced so cheaply that it can ignore the bond market here,” said James Solloway, research director at Argus Research. “With bond yields knocking on 7%, which is quite unexpected, the bond market is key to future stock performance.”
Adding to the uncertainty, the Treasury Department is set next Wednesday to release details on an estimated $41 billion in new three-, 10- and 30-year bonds to be auctioned the following week. The upcoming semiannual sale, coming after auctions this past week of nearly $30 billion in notes, is prompting concerns about whether fresh supply may outstrip investor demand in a skittish market.
Although some said there are things to cheer in the GDP report, Philip Roth, senior technical analyst at Dean Witter Reynolds, said stocks have risen too high too quickly to sustain even a hint of bad news.
“This market is in a position where everything has to go just right in order for the market to go up,” he said.
Among market highlights:
* James River climbed 7 3/8 to 33 in heavy trading after the maker of paper tissues announced a restructuring plan. Analysts upgraded the stock.
* Bank of Boston was up 2 1/8 at 43 3/4 after the abrupt departure of its chief executive raised hopes that new leadership will finally result in a successful merger for the bank.
* Wall Street gave a rousing welcome to technology stocks in initial public offerings. Among them, Telecom Semiconductor jumped 5 1/2 to 14 and Cybex rose 8 to 25.
But otherwise, technology stocks came under pressure from aggressive profit taking after performing well for most of the week. IBM eased 1/8 to 110 5/8, Compaq lost 1 1/8 to 51, Intel slipped 1 5/8 to 67 1/8 and Microsoft fell 3 7/8 to 92 5/8.
Coffee prices dropped for the second consecutive day amid doubts that producers will act to fulfill the terms of a new coffee pact agreed to this week. Coffee prices have declined about 10 cents a pound since reaching a six-week high earlier this week, when the Assn. of Coffee Producing Countries agreed to reduce exports by about 12% to 60 million 132-pound bags over the next year.
