FINANCIAL MARKETS : Dow Posts Small Loss as Yields Rise; High-Tech Surge Drives Nasdaq Up
Wall Street closed mixed Friday in one of its busiest sessions ever, buffeted by the quarterly expiration of stock derivatives and by another jump in bond yields.
The Dow Jones industrials eased 1.09 points to 5,584.97 after bouncing back from a morning loss of 35 points.
For the week, the Dow gained 114.52 points, recouping much of the 171.24-point plunge of March 8.
But there were reminders Friday of what triggered that dive: Long-term bond yields moved sharply higher again after the Federal Reserve Board said U.S. industrial production rebounded in February after a storm-weakened January.
The Fed’s report, and a jump in a key monthly consumer sentiment index tracked by the University of Michigan, suggested that the economy is indeed on sound footing and could gain steam in coming months.
Dejected bond traders again dumped bonds, fearing that a stronger economy will mean higher interest rates. The selling pushed the yield on the Treasury’s bellwether 30-year bond from 6.69% on Thursday to 6.73%--the highest close since 6.81% on Aug. 24.
Shorter-term yields also jumped. The two-year T-note yield closed at 5.88%, up from 5.74% on Thursday.
“I’m bearish,” said Terrence Pigott, head bond trader at Daiwa Securities America in New York. “There’s no doubt in my mind that if things continue to pick up, then the Fed will have to reverse” its two most recent interest rate cuts later this year, he said.
The bond market appeared to take little solace from another government report Friday, which showed that consumer prices rose just 0.2% last month, suggesting inflation remains well in check.
Some bond investors, however, said yields have now risen so significantly this year that bonds are a buy. The two-year T-note yield, for example, was at 4.91% as recently as Feb. 16.
“From our point of view, it’s a buying opportunity rather than a sign to get out of the market,” said Dick Lodge, chief investment officer at Banc One Corp. in Columbus, Ohio. “I’m still not convinced the economy is all that strong.”
In any case, some Wall Streeters said the big surprise Friday, and all week, was how resilient stocks have been to the surge in yields.
After the one-day market shock March 8, many investors have been buying shares of companies most likely to benefit from a stronger economy. That continued Friday as many technology stocks roared back to life, boosting the tech-heavy Nasdaq composite stock index 8.52 points to 1,099.59.
But in the broad market, declining issues led advances 1,249 to 1,111 on the Big Board, as volume rocketed to 529 million shares, the sixth-heaviest trading ever.
Volume was swollen by trading related to the rolling over or closing out of traders’ positions that play stocks against stock index futures, index options and individual stock options. Many of those derivative contracts expired Friday, in a quarterly event known as “triple witching.”
Among Friday’s highlights:
* Technology stocks leading the market higher included IBM, up 3 to 119 7/8; Intel, up 2 3/4 to 58 7/8; Micron Technology, up 3 1/2 to 32 5/8; Seagate, up 2 3/4 to 59 3/4; and 3Com, up 2 5/8 to 44 3/8.
* Many retail stocks also rose again. Dayton Hudson gained 2 1/2 to 84 1/8, Kmart surged 3/4 to 10 1/4 and Pier One rose 1 to 14 1/4.
* Philip Morris jumped 2 7/8 to 94 1/4, rebounding from heavy losses Thursday on worries about tobacco liability suits.
* NONINFLATIONARY GROWTH?
Industrial production surged, but inflation stayed tame. A1
