Dow Off 15.89 as Traders Fret Over Long-Term Rates
The stock market closed broadly lower for a third straight session Tuesday, as bond yields rose again and as key semiconductor issues suffered another blow.
Still, many stocks recovered from their worst levels of the day, which traders said was an indication of the level of cash still fighting to get into the market.
The blue-chip Dow Jones industrial average closed off 15.89 points at 5,549.21 after tumbling 65.39 points Monday.
The Dow was down more than 50 points in late afternoon Tuesday before rebounding, pulling the broad market with it.
Losers topped winners by 1,340 to 1,014 on the New York Stock Exchange, but trading volume was a moderate 409 million shares.
Stocks were pressured early in the session even though long-term bond yields began to ease somewhat, after surging Monday.
Analysts said worries over the presidential race, and the apparently fading importance of the federal balanced-budget issue among major candidates, weighed on the stock market.
“It’s a market encumbered by interest rate jitters and the outcome of the [Republican presidential] race,” said Alan Ackerman, strategist at Fahnestock & Co.
Bond yields have been rising steadily in recent weeks as some investors believe that the U.S. economy may be poised for a new growth spurt, despite mixed economic data recently.
On Tuesday, a reported jump in consumer confidence helped stoke expectations for faster growth ahead, lifting bond yields in late trading despite their early dip.
By the close, the yield on the bellwether 30-year Treasury bond was at 6.47%, up from 6.45% on Monday and the highest in nearly five months.
Shorter-term yields also rose sharply. “You have more and more people saying maybe” the Federal Reserve Board won’t lower short-term interest rates again until May, said Terrence Pigott, head trader at Daiwa Securities America. “Maybe the Fed’s not going to move at all.”
The Treasury sold $18.25 billion of new two-year notes on Tuesday, and despite strong demand, the average yield was 5.235%, the highest in two months.
It’s “the end of the bull market for bonds for right now,” said Michael Strauss, 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.”
With right-wing Republican presidential candidate Patrick J. Buchanan emphasizing social issues, “there are worries about populism and a de-emphasis on [budget] deficit cuts,” said Ed Nicoski, analyst at Piper Jaffray.
The bond market had been rallying late last year and in January partly on the assumption of lower federal borrowing ahead.
Among Tuesday’s highlights:
* Major semiconductor and semiconductor equipment stocks fell after Micron Technology said it would delay investment in a new chip plant because of slowing demand. Micron plunged 3 1/8 to 33 5/8, Texas Instruments slumped 2 to 51 3/8, Motorola lost 2 to 51 3/8 and Applied Materials dove 3 17/64 to 38 1/4.
But other tech issues were mixed. IBM shot up 3 7/8 to 128 3/4 and Digital Equipment gained 2 1/4 to 74 7/8.
* Internet-related stocks plunged on news that AT&T; will offer a new Internet service. America Online sank 4 13/16 to 49 1/8 and Netcom tumbled 5 to 22 3/4. AT&T; fell 1 to 64.
* 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.
* In the biotech field, 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.
* Chiquita Brands surged 2 1/8 to 15 5/8 after the produce and food company said its fourth-quarter loss from continuing operations narrowed. Rival Dole Food jumped 1 7/8 to 40.
In commodities trading, 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.
The contract reached $3.91 per bushel before ending up 3 cents at $3.88.
