FINANCIAL MARKETS : Stocks’ Streak Ends as Yields Hit 2-Year Lows
Blue-chip stocks closed lower Thursday as investors called a timeout after six consecutive sessions of record highs, while Treasury bond yields dropped to two-year lows.
Bond traders interpreted new government reports as more evidence of weakness in the economy, raising hopes that the central bank will lower interest rates to spur growth.
The yield of the Treasury’s main 30-year bond fell to 6.12% from 6.19% on Wednesday. Yields have not been this low on 30-year bonds since a finish at 6.10% on Nov. 3, 1993.
“There’s definite room for an easing” of interest rates, said Dan Bernzweig, money market trader at Bank Leumi Trust Co. of New York. “Everything said that inflation is not a concern.”
The Commerce Department reported that orders for durable goods fell 1% last month as demand for aircraft, automobiles and military hardware plunged--the first drop in three months--and the Purchasing Management Assn. of Chicago said its index of area business activity fell to 49.9% in November on a seasonally adjusted basis, from 53.4% in October. A figure above 50% indicates economic expansion.
Some of the bond market buying was attributed to institutional investors polishing up their holdings for month-end accounting purposes, but there was also strong demand from individual investors, analysts said.
A late wave of selling erased early modest stock market gains and sent the Dow Jones industrial average down 31.07 points at the close to 5,074.49. “The market just fell off a cliff at 3 o’clock,” said Richard Dickson, a technical analyst at Scott & Stringfellow Inc. in Richmond, Va. “It had to be program trading. There’s no other explanation.”
Philip Roth, a technical analyst at Dean Witter Reynolds Inc., said sell programs on the last day of the month “often produce wild swings,” as portfolio managers tinker with index-related portfolios. Roth said the Russell 2,000 index surged at the end of the day, reversing a loss and ending up 1.86 points at 308.58. Roth said that indicated that although investors were selling blue-chip names, they were just as avidly buying smaller-company issues.
Other broad-market indexes ended the session mixed. Advancing issues led decliners 1,352 to 1,003 on the New York Stock Exchange.
The rally in the bond market sparked new interest in the dollar Thursday, lifting the greenback against most leading currencies. The dollar reached a 10-week high against the German mark during the day. Analysts said the dollar drew support from expectations that weak European economies would force interest rate cuts, particularly in Germany, to spark new growth. But Germany’s Bundesbank met Thursday and left rates unchanged. In late New York trading, the dollar was quoted at 1.4470 marks, up from 1.4366 on Wednesday. During the session, the dollar rose to 1.4505, a high not seen since it hit 1.4660 on Sept. 21.
Among the market highlights:
* Retailers reported that November sales at stores open at least a year were disappointing. Gap fell 3 1/4 to 45 1/4. Best Buy fell 1 1/4 to 20 1/2.
* Rite Aid rose 2 5/8 to 31 1/4 and Revco was up 2 1/4 to 27 5/8 on news of their $1.8-billion merger.
* Semiconductor stocks sagged after Goldman Sachs lowered its 1996 earnings estimates on Texas Instruments, which was down 1 5/8 to 57 7/8, and Micron Technology, down 5/8 to 54 1/4. Goldman said prices for DRAM, or dynamic random access memory, chips could fall 15% to 20%.
In foreign stock markets, the Nikkei-225 index in Tokyo rose 1.14%, bolstered by the yen’s retreat against the dollar on expectations for a cut in German interest rates.
The FTSE-100 index in London fell 0.24%, the DAX index in Frankfurt eased 0.12%, and Mexico’s Bolsa index gave up 1.30% after two days of strong gains.
Frozen concentrated orange juice futures hit 11-month highs Thursday as forecasts for a cold December reminded market players that the season for crop-damaging frosts in Florida has begun. January frozen orange juice futures ended 2.45 cents higher at 126.90 cents a pound, after trading as high as 127.60. Next year’s March contract closed 2.30 cents higher at 129.65 cents, after hitting contract highs.
