FINANCIAL MARKETS : Stocks Stay in Downtrend as Bonds Gyrate
The stock market closed broadly but modestly lower Thursday in the wake of another wild day in the bond market.
But there were signs late Thursday that higher bond yields were attracting more buyers.
On Wall Street, the Dow Jones industrial average dropped 20.59 points to 5,485.62, its fourth straight loss after reaching a record 5,630.49 a week ago.
In the broad market, the Standard & Poor’s 500 index fell 4.32 points to 640.43, leaving it 3.2% below its recent record high.
The Nasdaq composite index of mostly smaller stocks eased 7.50 points to 1,100.05.
Losers outnumbered winners by 15 to 9 on the Big Board in active trading.
Bond yields jumped anew early in the day as economic reports painted a mixed picture. An unexpected drop in claims for initial unemployment benefits suggested to some investors that the economy is improving--exactly what the bond market has been fearing in recent weeks.
But a very weak report on Chicago-area manufacturing activity in February suggested the opposite about the economy.
Bonds were also spooked by comments from Federal Reserve Bank of San Francisco President Robert Parry, who said he is “really quite comfortable at this point with monetary policy.” Bond traders took that to mean the Fed might not be in any hurry to cut short-term interest rates further.
The 30-year Treasury bond yield, which closed at 6.47% on Wednesday, rose to 6.54% early Thursday, a new five-month high. Shorter-term yields also jumped.
But in late trading, yields descended again. The 30-year bond yield ended the day at 6.46%. The five-year T-note yield, which jumped from 5.68% at Wednesday’s close to as much as 5.81% on Thursday afternoon, dropped to 5.74% at the close.
Still, bonds will face a new threat soon: Treasury Secretary Robert Rubin told the House Ways and Means Committee on Thursday that the government could default on its obligations by March 21 should Congress fail to raise the $4.9-trillion debt ceiling. He urged lawmakers to act promptly to raise the ceiling and not to attach conditions to the bill that would be unacceptable to the Clinton administration.
Among Thursday’s highlights:
* Paper stocks led many industrial issues lower, after Merrill Lynch warned that falling paper prices--a result of the weak economy--will cut into the companies’ earnings. International Paper fell 7/8 to 35 3/4, Champion International slid 1 1/2 to 40 and Boise Cascade slumped 1 3/4 to 35 1/4.
* Utility stocks, sensitive to rising interest rates, were also hit. American Electric Power sank 7/8 to 42 7/8 and Consolidated Edison was off 5/8 to 32 3/8.
* Computer chip maker LSI Logic tumbled 3 7/8 to 27 5/8 after warning that its first-quarter earnings will be weaker than expected. Tech issues in general were lower, with IBM down 4 3/4 to 122 5/8 and Sync Research sliding 5 to 27.
* On the plus side, the day’s gainers included Mirage Resorts, up 3 3/4 to 46 3/8; Gillette, up 2 3/8 to 54 1/8; and Coleman, which jumped 3 5/8 to 44 1/8 on takeover rumors that named Brunswick as a suitor. Brunswick fell 1/4 to 22 7/8.
In Mexico City, stocks fell to their lowest level in two months amid concern that higher interest rates and a tumbling peso will hurt company earnings. The Bolsa index dropped 30.05 points to 2,832.54 in its fourth straight decline.
Brazilian and Argentine stocks also plunged.
But in Tokyo, the Nikkei-225 index rebounded 205.40 points, or 1%, to 20,125.37 after hitting a 1996 low Wednesday.
