Dow Off 15.89 as Traders Fret Over Long-Term Rates
Blue-chip stocks suffered their second consecutive setback Tuesday as Wall Street grew more worried that long-term interest rates may be headed higher.
In volatile trading, the Dow Jones industrial average ended with a loss of 15.89 points at 5,549.21 after a drop of more than 50 points activated the New York Stock Exchange’s limit on program trading earlier in the day.
Interest rate fears also rattled the market Monday, with the Dow index closing down 65 points.
“It’s a market encumbered by interest rate jitters and the outcome of the GOP race,” said Alan Ackerman, market strategist at Fahnestock & Co.
Investors fear that long-term bond rates may be headed higher due to slightly stronger economic growth and diminished hopes for a federal budget agreement, at least in the near term.
Rising interest rates could stunt the economy’s growth and hurt corporate profits by boosting the cost of borrowing.
In the bond market, the key 30-year Treasury bond yield rose to 6.47% fro 6.45%.
The bond market retreated despite what analysts described as satisfactory demand at the Treasury’s monthly auction of new two-year notes. The market decline suggested that investors have yet to recover from a powerful sell-off in bonds that has driven up yields nearly half a percentage point over the last two weeks.
It’s “the end of the bull market for bonds for right now,” said Michael Strauss, chief economist at Yaimichi Securities. “It doesn’t mean you go from bull market to bear market, but you’re going to establish a more realistic trading range.”
Analysts said Republican presidential hopeful Buchanan’s strength was unsettling some investors.
Wall Street fears that greater U.S. protectionism, one plank of Buchanan’s platform, could weigh on the stock market.
A shaky start to the campaign of Senate Majority Leader Bob Dole (R-Kan.) may make it easier for President Clinton to win, which markets view negatively.
“There are worries about populism and a de-emphasis on deficit cuts,” said Ed Nicoski, analyst at Piper Jaffray.
The markets absorbed a slew of economic data. The consumer confidence index rose to 97.0 in February from a revised 88.4 in January. The latest report reversed sharp declines in confidence readings in January.
January producer prices rose 0.3%, compared with an expected 0.5% rise. January retail sales fell 0.3%; the forecast had been for a 0.4% decline.
Fahnestock’s Ackerman said the Fed will need more data before deciding whether to trim interest rates again at the March 26 meeting of its policy-setting Federal Open Market Committee.
Some technology stocks were again strong, although the technology-laden Nasdaq composite index ended with a loss of 6.88 points at 1,106.17.
Among Tuesday’s highlights:
* US West Media lost 5/8 to 21 5/8 after announcing it will buy Continental Cablevision, the third-largest U.S. cable operator, for $10.8 billion, including the assumption of debt.
* Florida East Coast climbed 8 1/8 to 83 1/8 after news of the proposed sale of its railroad unit. St Joe Paper, which owns 54% of Florida East Coast and has indicated a strong interest in acquiring the unit, added 4 3/8 to 59 3/4.
* Microchip slumped 7 1/2 to 28 1/2 after the company warned that its earnings and revenue will be lower than expected for the current quarter.
* Cephalon shed 3 1/2 to 20 on market speculation that it might be required to run new clinical tests for its Myotrophin drug. The company said the status of the drug for treating Lou Gehrig’s disease is unchanged.
* Other telephone issues fell on concern that higher interest rates would hurt the investment-intensive industry. Sprint fell 1 1/8 to 42 1/2, AT&T; slumped 1 to 64, and Bell Atlantic dropped 3/8 to 65 7/8.
Corn futures set 15-year highs before giving up some of the gains in late trading due to profit taking.
Slow farmer selling, firm cash markets and active exports helped boost the March corn contract on the Chicago Board of Trade, but the market faltered in late dealings.
“Everything we’ve been talking about in terms of tightness [in corn supplies] is starting to evolve now,” said Mark Cermak of O’Connor & Co.
The contract reached $3.91 per bushel before ending up 3 cents at $3.88.
