FINANCIAL MARKETS : Spike in Bond Yields Triggers Dow’s Plunge
The Dow Jones industrial average, sparked by an early-morning spike in long-term Treasury bond yields, fell more than 100 points Monday. Investors were anxious about weak earnings and the collapse of budget negotiations in Washington, which diminished hopes of lower interest rates.
The benchmark 30-year Treasury bond yield advanced to 6.20%, its highest since Nov. 28. The yield was 6.09% on Friday and had been flirting with as low as 6% earlier this month.
The bond’s yield is a sensitive barometer of interest-rate trends. Most of the selling pressure concentrated on the long-term sector of the Treasury bond market, which had been increasingly optimistic that the White House and Congress would agree on a balanced budget.
That optimism had contributed recently to a powerful rally in bond prices--and accompanying lower yields--and had strengthened predictions that the Federal Reserve Board would lower interest rates today, its last policy-making meeting of the year. Lower rates tend to raise demand for bonds already in circulation, making them more valuable.
Concerns about the federal budget impasse help sink the dollar to 1.4290 marks Monday from 1.4435 late Friday. Against the yen, the dollar fell to 101.52 from 102.05.
The bond rout spilled into the stock market, where the Dow Jones industrial average drop of 1.96% was the biggest in percentage terms since February 4, 1994, when it lost 2.4%. A delayed start of trading on the NYSE, because of computer problems, spooked traders who watch the bond market activity while waiting for the opening.
Adding pessimism were profit warnings from such diverse companies as securities broker Charles Schwab, computer-chip maker Advanced Micro Devices and veterinary company Pet Practice. Some investors said the market remains vulnerable.
“You’re going to see more days like this one ahead,” said James Engle, chief investment officer at Wood Struthers & Winthrop. “Earnings peaked in the third quarter, and we’ll see something very close to flat profits for the next year.”
More than 426 million shares traded on the New York Stock Exchange, after a record 636.8 million shares exchanged hands on Friday. Some 2,031 shares fell and 470 issues gained, the broadest decline on the 203-year-old exchange since July 19.
Computer-related stocks, which fueled much of this year’s rally to record highs, were among the biggest losers. The technology-weighted Nasdaq composite index skidded 2.71%, 27.91 points to 1002.56, its biggest drop since a 35.77-point slide July 19. The Bloomberg California index of larger state companies, an index even more influenced by technology stocks, fell 3.03%.
The broader Standard & Poor’s 500 index fell 1.55% or 9.53 points to 606.81, its lowest level since Nov. 30 and its biggest drop since July 19.
“What’s happening in technology really looks like it’s a panic here, and it might easily go on for the last two weeks of the year,” said Geoffrey Brod, money manager at Aeltus Investment Management Inc., which manages $5 billion in equities.
Computer-related shares continued a decline that started to pick up speed in early November. Advanced Micro’s preopening announcement punctured technology stocks. The company said its fourth-quarter profit will be less than analysts’ forecasts, a sign that the fastest-growing companies in 1995 won’t see robust profits next year. Advanced Micro fell 1 1/8 to 17 1/8.
The announcement resonated with investors’ concern that consumers won’t buy as many computers as predicted this Christmas. The industry reaps about 36% of its sales during the holiday season.
Among market highlights:
* Among the losing technology stocks, Applied Materials fell 3 1/4 to 38 3/4, Intel slid 1 to 57 1/4, U.S. Robotics dropped 4 1/2 to 83 1/2, Cisco Systems weakened 3 1/8 to 70 7/8 and Oracle dropped 2 1/8 to 41 1/4. Micron Technology shed 1 5/8 to 43 1/4, IBM lost 1 1/4 to 89 and Texas Instruments fell 2 1/2 to 46 1/2.
* Concern about 1996 profits affected stocks unrelated to computers. Charles Schwab, the nation’s biggest discount broker, said it will earn between 22 cents and 25 cents a share in the fourth quarter. Although that is up from last year’s 19 cents a share, it fell below the 27 cents analysts expected. The stock fell 2 5/8 to 17.
* Amid Monday’s slump, Cobra Golf’s shares rose 7 7/8 to 35 1/2. American Brands agreed to buy the golf equipment company for about $700 million, or $36 a share. American Brands makes Titleist golf equipment.
Market Roundup, D8
