Stocks End Moderately Lower as Bond Yields Drop
Blue-chip stocks bounced back from a steep fall to end moderately lower as the market was rescued by a late rally in bonds.
Slow retail sales and renewed optimism about a budget agreement in Washington helped push bond yields down, with the 30-year yield falling to 6.63% from 6.71% on Tuesday.
Technology stocks, however, were hammered by a warning from Digital Equipment of disappointing earnings.
The Dow Jones industrial average ended with a moderate loss of 14.09 points at 5,655.42 after roaring back from a deficit of more than 50 points.
In the broader market, declining issues led advancers 1,151 to 1,143 on active volume of 408 million shares on the New York Stock Exchange.
Bonds rallied after House Majority Leader Dick Armey said he expected the House to vote next week on a measure raising the federal debt limit. The Texas Republican told reporters he expects the debt limit increase to run through July of 1997.
But House Speaker Newt Gingrich (R-Ga.) told reporters a few minutes later that a decision on timing had not yet been made.
Nonetheless, bond traders were soothed after the Commerce Department reported that retail sales rose a less-than-expected 0.8% in February, rebounding from anemic January levels as consumers returned to department stores, shopping malls and auto dealerships.
Analysts cautioned that the rebound did not signal a spending spree, though.
That view eased worries that a surge in national employment last month was spurring a broader economic expansion.
The mood of the stock market soured from the opening after Digital Equipment said it expected its current quarterly earnings to fall well below Wall Street expectations. The news sent shares of Digital and other computer makers plummeting.
“It simply reflects the fact that spending on computers in the first quarter has slowed from 1995’s strong rate,” said Hugh Johnson of First Albany Capital.
The technology-laden Nasdaq composite index lost 10.68 points, nearly 1%, to 1,101.82.
Digital tumbled 11 1/8 to 56, and the selling spilled over to the shares of International Business Machines. IBM, a Dow 30 component, tumbled 4 3/4 to 117.
Hewlett-Packard dropped 4 to 97 1/4, and chip maker Intel fell 3 1/4 to 55 1/2.
But Wall Street was still unsure about the strength of the economy.
Although the Commerce Department said retail sales bounced back in February from January’s wintry slump, the numbers, while pointing to economic growth, indicated a more modest rate of expansion than did the surge of 705,000 new jobs reported for February.
Analysts said the disappointing sales data revived hopes that the Federal Reserve Board will lower interest rates at the March 26 meeting of its policy-setting Federal Open Market Committee.
Among market highlights:
* Trimedyne topped the Nasdaq actives list, rising 3/4 to 10 7/8 after soaring 6-11/16 on Tuesday on news that the Food and Drug Administration approved use of the company’s proprietary lasers for prostate treatment.
* PacifiCare B shares slumped a second day, down 6 5/8 to 84 1/2. The company has warned its quarterly earnings will not meet expectations.
* Oil stocks dropped on profit-taking as crude futures for April delivery lost $1.28 to $23.06 a barrel. Exxon fell 2 3/8 to 80 1/2, Chevron dropped 1 1/8 to 55 7/8 and Texaco slid 1 1/8 to 84 5/8. All are Dow 30 components.
* Retailing stocks were mixed after the Commerce Department released its report. Sears rose 1/2 to 51 1/2, Wal-Mart rose 1/8 to 23 7/8, and Kmart added 1/4 to 10.
Stock markets in Europe were mixed. The FTSE-100 index in London was down 0.21% and the DAX index in Frankfurt 0.30%, but the CAC index in Paris was up 0.13%. Japanese markets were closed for a holiday.
The spot month in wheat shot up to an all-time high in wild trading just before the contract expired at noon on Wednesday as investors scrambled to square positions, highlighting that wheat supplies are at a 22-year low.
“You’ll never see this again,” one trader said of the frenzied trading in the Chicago Board of Trade wheat pit, where March at one point posted a 48% one-day gain to $7.50 a bushel.
“I couldn’t believe the quotes. I thought there was something wrong with the machine,” another trader said.
The March contract expired at $6.40, up $1.33 a bushel.
The previous record wheat price was $6.45, set February 26, 1974.
Traders said the expiration was one of the most volatile and explosive ever, triggered by two firms with commercial ties that apparently had to buy back previously sold positions to avoid making delivery of thousands of bushels of wheat. Most commodity futures positions are offset before delivery.
“The March rally really woke up the market,” another trader said. “It foreshadows what is coming this summer.”
He was referring to dwindling supplies of wheat that the government has projected will fall to 346 million bushels by May 31, a 32% decline from a year ago and the lowest in more than two decades.
