FINANCIAL MARKETS : Fed Decision Barely Ruffles Dull Session
Stock prices closed mixed Tuesday as bond yields edged up after the Federal Reserve Board declined to cut short-term interest rates further.
Technology stocks recovered somewhat from Monday’s drubbing, and most major stock indexes edged higher, but the broad market was lower in moderate trading.
Meanwhile, the dollar gained against the German mark, and key commodity prices pulled back after surging on Monday.
On Wall Street, the Dow Jones industrial average added 5.64 points to 4,620.42, rebounding from a mild early selloff.
Buying among battered tech issues also pulled the Nasdaq composite index up 5.59 points to 1,025.29. It had slumped 11.58 points on Monday.
But in the broad market losers outnumbered winners by 11 to 10 on the NYSE. And the Russell 2,000 index of smaller stocks lost 1.16 points to 304.32.
Analysts said stocks’ mixed performance in recent sessions reflects the “summertime blahs” and many investors’ uncertainty about the bull market’s next move.
“We’re seeing a market that has simply lost its forward momentum after a very strong rise in the first half of the year,” said James Solloway, director of research at Argus Research Corp.
But he argues that a slowdown in activity “is nothing to get excited about,” especially in August when many investors are vacationing.
The stock market showed no overt reaction to the Fed’s apparent decision not to change short-term interest rates. The central bank had been widely expected to leave rates alone.
Even so, bond yields rose slightly late in the day, after the Fed’s meeting was adjourned. The 30-year Treasury bond yield closed at 6.89%, up from 6.87% on Monday.
The Treasury’s auction of new 2-year notes went about as expected. A total of $17.8 billion of notes were sold at an average yield of 6.09%.
The Treasury will sell $11.5 billion in five-year notes today at an expected yield of about 6.35%.
While the Fed left short-term rates alone, speculation again intensified that the German central bank may cut its rates. That helped weaken the German mark, which closed in New York at 1.487 to the dollar, versus Monday’s 1.477.
The dollar itself was down a bit against the Japanese yen, at 96.85 compared to 96.87 Monday.
“People are focused on Germany because the scenario is in place for a rate cut, and whether it comes now or later, people believe it is coming,” said John McCarthy, manager of foreign exchange for ING Capital Markets in New York.
In commodity markets, Monday’s sharp rise in the Knight- Ridder Commodity Research Bureau index to a five-year high gave way to profit-taking on Tuesday.
The CRB index of 21 key commodities dipped 0.48 point to 239.44. It had jumped 2.59 points on Monday.
Although oil prices continued to advance, with September crude futures up 29 cents to $18.54 a barrel at the New York Merc, prices of grain, lumber, silver and gold fell back.
However, coffee prices bounded higher as drought concerns arose about next year’s Brazilian crop.
The December coffee futures contract climbed 3.95 cents to $1.52 a pound, the highest since mid-June, at the Coffee, Sugar and Cocoa Exchange.
Reports that Brazil has been hit by unusually dry weather this month, coming a year after the coffee belt was battered by two frosts and a drought, drew buyers into the futures market.
Among Tuesday’s market highlights:
* Buyers swarmed back into semiconductor stocks, which tumbled on Monday after some analysts trimmed earnings estimates for industry giant Intel.
Intel, which sank 4 5/8 on Monday, rose 2 to 62 1/4. Also rising were Micron Technology, up 4 3/8 to 72 3/8; National Semiconductor, up 1 5/8 to 28 3/4; Texas Instruments, up 2 3/4 to 76 1/2; and Motorola, up 1 1/2 to 75 1/2.
* Elsewhere in the volatile tech sector, System Software shot up 8 3/16 to 34 13/16 after it reported that quarterly earnings doubled. The report seemed to re-energize software issues. Microsoft jumped 4 13/16 to 99 5/16, Adobe Systems gained 2 5/8 to 61 1/8 and BMC Software added 1 5/8 to 44 1/4.
Despite the rebound in many tech stocks, Peter Anderson, chief investment officer of American Express’ IDS Advisory Group, said they are pointing to a market-wide correction.
“The turning point for technology stocks is coming right now. Slowly but surely the steam is going out of this very powerful sector of the market,” he said.
* Some entertainment issues were under pressure. News Corp. fell 1 1/4 to 22 3/4 on a disappointing earnings report. And King World Productions fell 1 3/8 to 38 5/8, continuing to slide after Turner Broadcasting decided against making a bid for the firm.
* Some drug stocks rose on further takeover speculation. Upjohn, which on Sunday agreed to merge with Sweden’s Pharmacia, jumped 2 1/4 to 43 as some traders anticipated that a rival bid could surface.
Also rising were Warner-Lambert, up 2 3/4 to 90 1/8; and American Home Products, up 1/4 to 79 1/2.
* Industrial stocks showed scattered strength. Dover jumped 2 to a record 81 5/8, Alcoa added 1 1/8 to 59 3/4, Teledyne added 5/8 to 24 3/8 and United Technologies gained 1 1/4 to 83 1/4.
* Among initial public offerings, Harbinger, an Internet-related software maker, sold shares at 12 and closed at 15 1/8.
Overseas, Tokyo’s Nikkei-225 index inched up 6.72 points to 17,877.77. In Mexico, the Bolsa index added 4.45 points to 2,489.55 even though the peso weakened sharply against the dollar.
