FINANCIAL MARKETS : Stocks, Bonds Weaken on Eve of Jobs Report
The stock market suffered a relatively mild wave of profit taking Thursday as bond yields rose ahead of today’s November employment report.
After three consecutive record closes, the Dow Jones industrial average slumped 39.74 points to 5,159.39, its biggest one-day point drop in six weeks.
In the broad market, losers outnumbered winners 16 to 9 on the New York Stock Exchange. But trading volume was 381 million shares, well below the levels of the last seven sessions. Analysts said the fact that the market declined on slower volume indicated that buyers were taking a rest, not that sellers were swarming.
Stocks were undercut by profit taking in the bond market, which has rallied powerfully with stocks in recent weeks.
Yields rose as nervous traders squared positions ahead of today’s government report on November employment. Some investors fear that a stronger-than-expected jobs gain could convince the Federal Reserve Board there is no pressing need to cut short-term interest rates.
Wall Street has largely been operating under the assumption that the economy is weak enough to justify a Fed cut. But a Fed report Wednesday on regional economic conditions warned that wage increases are beginning to accelerate in some parts of the country. Wage inflation can be a harbinger of general inflation.
On Thursday, J. Alfred Broaddus, head of the Fed’s Richmond, Va., branch, told business leaders at a South Carolina forum that he saw no threat of recession ahead and that the economy should grow at a moderate pace in 1996.
Although Broaddus is only one of many Fed executives, some bond investors fear that the central bank will be dissuaded from lowering rates at its Dec. 19 meeting.
Another Fed official, Gov. Susan Phillips, added to market concerns Thursday when she told Dow Jones that “we probably are going to see some firming of wage pressures” ahead.
The 30-year Treasury bond yield rose to 6.07% from 6.04% on Wednesday, and shorter-term yields also closed marginally higher.
The Treasury auctioned one-year bills Thursday at an average discount rate of 5.06%.
Many analysts predict that today’s November employment report will show that 150,000 jobs were created last month. A bigger number could send bond yields rebounding on the assumption that the Fed will find it more difficult to justify lower rates.
On Wall Street on Thursday, stocks’ decline was exaggerated by computer-driven program trading at midday, which sent the Dow down as much as 50 points before it rebounded.
Most broad-market indexes closed lower. The Standard & Poor’s 500 gave up 4.01 points to 616.17. The Nasdaq composite sank 8.56 points to 1,053.17.
Among Thursday’s highlights:
* Financial stocks were mostly lower. They would suffer if interest rates were to rise again. Citicorp dropped 2 1/2 to 70, Chemical Banking lost 2 3/8 to 60, BankAmerica was off 2 at 66 1/2 and Morgan Stanley eased 1/2 to 87 7/8.
* Utility stocks also sank. The Dow utility average lost 2.77 points, or 1.25%, to close at 218.36.
* Technology stocks were mixed, despite dramatic declines in recently soaring Internet-related issues. Netcom On-Line plunged 8 3/4 to 54 3/4, Netscape Communications dove 28 3/4 to 132 1/2, Cabletron Systems sank 1 3/4 to 75 7/8 and IBM was off 1 to 94 3/4.
But Seagate gained 2 to 53 1/4, Motorola added 7/8 to 61 and Sun Microsystems shot up 3 3/8 to 93 1/8.
* Airline ValuJet slumped 3 1/8 to 21 1/4 on rising worries about competition from larger rival Delta Air Lines. Delta fell 2 1/2 to 76 1/2.
* GM dropped 1 5/8 to 49 1/4 after Goldman Sachs cut its 1996 earnings estimate.
In foreign trading, Tokyo’s Nikkei-225 index continued to surge, adding 344.46 points to 19,412.32.
Mexico’s Bolsa index lost 13.67 points to 2,667.20.
The dollar edged up after Germany’s central bank president, Hans Tietmeyer, called for a stronger U.S. currency. He also said he did not see signs of recession in Europe, but many analysts believe Germany is poised to lower interest rates nonetheless.
