Stocks End Moderately Lower as Bond Yields Drop
U.S. stocks bounced back from a midday sell-off to close modestly lower Wednesday, as Treasury bond yields took their sharpest fall since March 11.
The Dow Jones industrials ended off 14.09 points at 5,655.42, after being down as much as 50 points.
In the broad market, losers only narrowly edged winners on the Big Board, despite another steep decline in many technology stocks after Digital Equipment warned of slower-than- expected personal computer sales.
Digital’s warning, which it said will translate into disappointing first-quarter earnings, put Wall Street in a selling mood from the get-go Wednesday even as bond yields fell.
Analysts said Digital’s announcement reminded investors that first-quarter corporate earnings will be rolling out in a few weeks and that there are widespread concerns that earnings growth overall has slowed.
But stocks responded later in the day to sliding bond yields.
Bond traders were somewhat soothed after the Commerce Department reported that retail sales rose a less-than-expected 0.8% in February, rebounding from anemic January levels.
The number seemed to lessen worries about the economy’s potential to accelerate and push interest rates and inflation higher.
Bonds were also helped by House Majority Leader Dick Armey’s (R-Texas) announcement that he expects the House to vote next week on a measure raising the federal debt ceiling through July, 1997.
Republicans have been accused of holding the bond market hostage by refusing to raise the debt ceiling until President Clinton agrees to a budget compromise.
Armey’s optimism, however, was rebutted a few minutes later when House Speaker Newt Gingrich (R-Ga.) said there was no decision on the vote’s timing.
In any case, some analysts said bonds have been overdue for a rally, as yields have backed up to seven-month highs in recent weeks on concerns about the economy’s revival.
“It’s a relief rally,” said John Ryding, an economist at Bear, Stearns & Co. in New York. “People had priced in the worst” before the Commerce Department’s retail sales report Wednesday.
As buyers returned to the bond market, the yield on the bellwether 30-year T-bond fell to 6.63% from 6.71% on Tuesday. Shorter-term yields dropped more precipitously. The two-year T-note yield slid to 5.71% from 5.86%.
But the bond market’s anxiety level is likely to remain high ahead of the Federal Reserve Board’s meeting Tuesday. Some investors are still hoping that the Fed will cut short-term interest rates further, but most economists say that’s a long shot now.
As for stocks, analysts warn that traditional pre-quarter’s-end announcements of disappointing earnings could rile the market in coming days--even though those announcements often get more publicity than they arguably deserve.
Among Wednesday’s highlights:
* Digital’s shares sank 11 1/4 to 56 after its earnings warning, and many tech stocks tumbled with it. Intel lost 3 1/4 to 55 1/2, Microsoft dropped 2 1/4 to 104 5/8, IBM fell 4 3/4 to 117 and Cisco Systems was off 2 1/2 to 46. (Digital’s troubles, D5.)
* Some industrial names were hit by profit taking. USX-U.S. Steel slumped 1 3/8 to 36 after brokerage Lehman Bros. downgraded the stock to “neutral.” Other losers included Alcoa, off 1 1/2 to 61 7/8; Georgia-Pacific, down 3 1/4 to 68 3/8; and Inco, off 1 1/2 to 34 3/8.
* Many oil stocks also pulled back, with Exxon losing 2 3/8 to 80 1/2 and Unocal off 1/2 to 32 3/4.
* Southland-based health maintenance organization PacifiCare saw its Class B shares plunge 6 5/8 to 84 1/2 after it confirmed that first-quarter earnings will be less than expected because the cost of treating patients under some of its newer health plans has been greater than expected.
Among other HMOs, United Healthcare fell 1 1/4 to 61 5/8 and U.S. Healthcare dropped 3/4 to 46 3/8.
* On the plus side, some investors snapped up consumer products stocks that had recently been hit by profit taking. Coca-Cola jumped 1 3/4 to 84 1/4, Procter & Gamble gained 1 3/4 to 87 and battered tobacco giant Philip Morris surged 3 1/8 to 89 1/2.
* 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.
In commodities trading, spot-month wheat futures shot up to an all-time high in wild trading just before the contract expired at noon, 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 futures at one point posted a 48% one-day gain to $7.50 a bushel.
The March contract expired at $6.40, up $1.33 a bushel. The previous record wheat price was $6.45, set Feb. 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.
