FINANCIAL MARKETS : Price Report Clips Stocks; Rates Inch Up
Stocks and bonds weakened Tuesday as a surprising jump in November wholesale prices revived inflation jitters.
But the damage to markets was modest, and most investors still appear to be betting on an interest-rate cut soon by the Federal Reserve Board.
The Dow Jones industrial average eased just 9.40 points to 5,174.92 in relatively slow trading, though losers topped winners 14 to 10 on the Big Board.
In the bond market, the yield on the bellwether 30-year Treasury bond inched up to 6.05% from 6.04% on Monday. Yields on short-term T-bills slipped slightly.
Some analysts were surprised there wasn’t more selling in the bond market, after the government reported that wholesale prices jumped 0.5% in November.
The increase, though skewed by some seasonal factors, nonetheless raised fears that Fed policy-makers may decide it would be premature to lower interest rates to boost the economy. The Fed meets Tuesday.
Offsetting the inflation news, however, was a report from the Atlanta Fed branch that its index of regional manufacturing activity dropped for a third consecutive month--another piece of evidence pointing to a struggling economy.
Analysts said the Atlanta report may have kept profit taking in the bond market to a minimum. Also, some investors may be waiting for today’s report on November consumer inflation to either confirm or offset the wholesale figure.
“If you look at the long-term trend on inflation, it’s [still] convincingly good,” said Vic Thompson, who oversees $80 billion of fixed-income securities at State Street Global Advisors in Boston.
On Wall Street, renewed selling of many industrial and technology issues on economic jitters was partly offset by another rally in some consumer growth stocks. But most broad-market indexes still closed lower.
“I don’t think it’s a great environment for the traditional cyclical stocks,” said Robert Freedman, chief investment officer at John Hancock Mutual Funds. “The economy is not about to take off.”
Among Tuesday’s highlights:
* Industrial shares leading the Dow lower included AlliedSignal, off 1 5/8 to 47 3/4; Eastman Kodak, down 2 1/8 to 68; and United Technologies, off 1 3/8 to 94 1/8.
* Paper and forest product stocks continued to decline after Georgia-Pacific, the industry leader, warned that current-quarter earnings won’t live up to expectations.
Analysts slashed earnings estimates for the company, which reported soft prices and weak demand for pulp and container board.
Georgia-Pacific slid 3 to 68, Champion International skidded 2 to 40 7/8, Willamette Industries dropped 1 1/4 to 55 3/4, Bowater fell 2 to 33 1/4 and Boise Cascade lost 1 3/8 to 32 7/8.
* Chemical stocks were also under pressure on reports of falling prices for methanol and polyvinylchloride. Borden Chemical and Plastics slid 2 to 13 1/8, Dow Chemical eased 7/8 to 70, Union Carbide dropped 1 1/8 to 37 5/8 and B.F. Goodrich fell 1 to 65 1/2.
* In the technology sector, semiconductor shares fell after the industry’s trade group late Monday reported slowing chip orders. Texas Instruments dropped 1 3/4 to 54 1/2, Micron Technology fell 1 5/8 to 53 1/8 and Intel was off 1 1/4 to 62 1/4.
* On the plus side, Boeing jumped 1 1/2 to 74 3/8 after the company and its biggest union reached a tentative pact on a contract.
* Some consumer growth stocks also rallied. Coca-Cola added 3/4 to 80 1/8, Pfizer surged 1 3/8 to 65 1/2 and Quaker Oats jumped 1 1/8 to 37 1/4.
* Among new issues, MetaTools, a designer of computer graphic software tools, surged 11 to 29 in its first day of trading on Nasdaq.
* Among Southland issues, Western Waste rocketed 4 1/2 to 23 1/4. The company, periodically rumored to be a takeover candidate, said it had no comment on the activity.
Overseas, stocks were mostly higher in major markets. Mexico’s market was closed for a holiday.
In U.S. commodities trading, wheat prices dropped back from 15-year highs on forecasts for rain and snow in key Midwest growing areas that have been hit by more than two months of drought.
