Stocks Stumble as Bond Rates, Gold Jump
Stocks ended with minor losses Thursday as worries over the balanced-budget fight in Washington sparked another jump in long-term bond yields and a surge in gold prices.
The Dow Jones industrial average lost 26.01 points to 5,216.83, a day after setting a record high of 5,242.84.
Broad stock indexes also ended mostly lower, though on the Big Board, declining issues outnumbered advancers 1,267 to 1,042--hardly overwhelming.
The bond market had it considerably worse Thursday: The Treasury’s benchmark 30-year bond yield jumped to 6.11% from 6.03% on Wednesday.
Yet analysts were divided on what caused bonds’ latest stumble. Some said it was Wednesday’s warning from bond rater Moody’s Investors Service that it may downgrade $387 billion in U.S. debt because of the threat of default. Some in Congress have threatened to force default unless President Clinton accedes to Republicans’ balanced-budget plan.
Others, however, said investors dumped bonds on fears that key Republicans are caving in on the idea of balancing the budget in seven years. “The Republicans are saying they’re not going to get a seven-year plan and are just rolling up their sleeves to work on something for this year,” said Robert Fernald, who manages $1 billion in bonds at Society Asset Management in Cleveland. “I tend to think that weighs” on bonds.
A balanced-budget accord has been viewed as key to maintaining low interest rates in the long run.
With the mess in Washington unresolved, some investors continued to flock to gold, the traditional safe haven.
On New York’s Commodity Exchange, February gold futures jumped $3.20 to $406.70 an ounce, its highest level in 2 1/2 years.
Trading was heavy as an estimated 120,000 gold contracts changed hands, up from Wednesday’s 59,985.
The metal’s surge pushed shares of gold mining companies higher again. For example, Newmont Gold added 1 1/2 to 55 and ASA was up 1 1/8 at 46.
Douglas Cliggott, a senior investment strategist at Merrill Lynch, said foreign investors were shying from U.S. bonds on the remote prospect of a government default.
“The foreign buyer has more flexibility [than U.S. participants] to turn away from the U.S. market when risk is perceived to be rising,” he said.
In the stock market, however, James Pizzo, senior portfolio strategist at Oppenheimer & Co., downplayed the budget battle’s effect on Thursday’s trading.
“The stock market’s drop is more indicative of the run-up we’ve had, especially in the Dow stocks,” he said. Some investors were simply taking profits, he said.
Among the market highlights:
* Quarterly earnings reports continued to move stocks. Southwest Airlines rose 2 1/4 to 25 1/8 after reporting strong fourth-quarter earnings. But Delta fell 4 to 71 on its report.
* Coca-Cola slipped 1 1/2 to 73 5/8 after reporting results, including what some analysts said were disappointing sales in Latin America. Procter & Gamble dropped 2 1/2 to 85 3/4 on its earnings report.
* AT&T; lost 7/8 to 64 3/8 after the telephone company reported fourth-quarter profit before special charges of 94 cents a share, in line with analysts’ expectations.
* In the tech sector, Quarterdeck closed off 1/8 at 20 3/8 but tumbled to 17 in after-hours trading after the software company reported lower-than-expected earnings.
* Several initial public offerings drew interest. World Color, the nation’s third-largest commercial printer, rose 5/8 to 19 5/8. ESC Medical Systems, an Israeli medical devices maker, surged 12 to 27.
* Loewen Group tumbled 5 11/16 to 18 5/8 after a Mississippi court Wednesday ordered it to post a $625-million bond by Jan. 31 so it can appeal a November jury award of $500 million against it. Loewen said the move might force it to seek bankruptcy protection.
At the New York Mercantile Exchange, oil futures ended sharply lower Thursday, with heating oil prices hitting three-month lows on forecasts for easing cold.
“Heating oil prices have been particularly pressured,” Dean Witter Vice President Alan Levine said. “The onset of warmer weather in the Northeast has stopped a bull market in its tracks and a new high seems quite unlikely now.”
March crude ended down 61 cents at $17.67 a barrel. February heating oil closed down 2.21 cents at 50.51 cents a gallon, and February gasoline fell 1.53 cents to 52.67 cents.
