FINANCIAL MARKETS : Profit Taking Hits Stocks; Yields Surge
Blue-chip stocks succumbed late Thursday to profit taking and pressure from rising bond interest rates, closing lower for the second day in a row.
Bond yields rose after the release of economic data that suggested a stronger economy, perhaps forestalling a Federal Reserve Board interest rate cut.
The Dow Jones industrial average fell 28.18 points to close at 5,551.37, after Wednesday’s drop of 22 points.
In the broader market, declining issues led advancers 1,209 to 1,069 on heavy volume of 410.4 million shares on the New York Stock Exchange. The Nasdaq composite index gained 2.51 points to 1,090.54, while Standard & Poor’s 500 fell 4.26 points to 651.32.
“I think investors are a little tired and inclined to take some profits for the next few weeks,” said Phil Orlando, chief investment officer at Value Line Asset Management.
“As long as bonds are flying south, equities will feel the need to capitulate.”
IBM led the Dow industrials and computer issues higher, gaining 3 3/8 to 117 5/8 on the Big Board. But other technology shares were mixed. On the Big Board, Digital Equipment fell 2 3/8 to 68 1/8. In Nasdaq trading, Intel slipped 1/2 to 57 1/2, but Oracle rose 1 11/16 to 52 7/8.
In the bond market, the Treasury’s key 30-year bond lost a full point, raising the yield to 6.16% from 6.09% on Wednesday after the Commerce Department said December factory orders jumped a higher-than-expected 1.3%. This followed a drop of 0.1% in November.
In a separate report, the department said wholesalers’ inventories fell at the fastest rate in nine years in December as sales rose briskly. Stocks of unsold goods fell 0.7% to a seasonally adjusted $253.7 billion.
The data sparked worries among bond investors that Fed Chairman Alan Greenspan would hold off on further cuts in interest rates, after the central bank cut rates in late January in a bid to bolster the economy. Fed policymakers next meet on March 26.
Analysts said that Friday stock and bond trading activity would likely be lighter as traders leave early for the three-day President’s Day holiday weekend.
Among the market highlights:
* Dow component McDonald’s rose 1/2 to 51, but retail stocks fell, including Sears, down 1 7/8 to 44 7/8.
* Telecom stocks retreated after making strong gains earlier this week after passage by Congress of a revamping of the telecommunications industry. AT&T; fell 7/8 to 66 3/8. GTE dropped 2 1/4 to 45 3/4.
* Royal Dutch Petroleum shed 7 1/4 to 138 1/4 after reporting disappointing fourth-quarter results.
* Auto and heavy-machinery stocks were mostly lower. Deere slid 7/8 to 38 3/4, even after the company said first-quarter earnings rose to 63 cents a share from 53 cents a year ago. General Motors fell 2 3/8 to 50 1/8.
Overseas, London’s FTSE-100 index rose 34.8 points to 3,779.8, while Tokyo’s 225-share Nikkei average dropped 57.40 points to 20,886.19. Hong Kong stocks soared, with the blue-chip Hang Seng index rising 107.35 points to 11,471.81.
