FINANCIAL MARKETS : Stocks Fall With Hopes of Rate Cut
Stocks ended sharply lower Wednesday as Federal Reserve Chairman Alan Greenspan’s comments in congressional testimony seemed to dash hopes of an interest rate cut in the near future.
The Dow Jones industrial average closed down 43.72 points at 5,626.88 after rebounding from a loss of more than 60 points.
In the broader market, declining issues beat advances 1,275 to 1,042 on active volume of 402 million shares on the NYSE.
“Greenspan gave a very healthy report on the economy and bonds didn’t like that. Stocks followed bonds,” said Tom Carpenter, chief economist at ASB Capital Management Inc.
In the bond market, the price of the key 30-year Treasury bond plunged more than 1 1/4 points, boosting its yield to 6.69% from 6.58% on Tuesday.
Greenspan delivered an upbeat assessment about the outlook for the economy to the House Budget committee, saying the expansion has “staying power” and inflation is under control. But the Fed chief rattled Wall Street by saying that while the jobs market seemed to be improving, wages were starting to show signs of rising.
Analysts said some traders wrongly interpreted Greenspan’s comments on wage growth as a sign that inflation may become a problem, which would tie the Fed’s hands for another cut in interest rates. “We have had no real indication that the economy has broken out of a low inflation rate pattern,” said Thom Brown, managing director of Rutherford Brown & Catherwood.
Analysts said the stock market may have been spooked by the jump in long-term interest rates.
“There are a lot of nervous people out there. When yields go up, they’ll take stocks down,” said Jim Pizzo, senior market strategist at Oppenheimer & Co.
One bright spot for stocks was a continued rebound in the technology sector. The Nasdaq composite index, which is heavily weighted with technology stocks, rose 5.53 points to 1,093.88.
Traders were heartened when the stock of Apple Computer rose after the computer forecast a wider-than-expected loss of $700 million for the latest quarter, which was mostly due to an inventory write-down. Apple rose 1 3/8 to 25 1/4.
International Business Machines rose 7/8 to 111 1/2 and Intel added 1/2 to 56 5/8.
Pizzo said the market was marking time until the companies stary to report their first-quarter earnings in the next two weeks.
Among the market highlights:
* A broad mix of industrial, basic-materials and consumer issues declined. Among Dow industrials, United Technologies lost 2 3/8 to 113 7/8; Exxon was down 1 7/8 to 84 1/8; Procter & Gamble gave up 1 5/8 to 85 3/4, and Philip Morris lost 1 3/8 to 87 5/8.
* Oil stocks declined. Texaco fell 7/8 to 87 1/2, Atlantic Richfield fell 1 1/8 to 117 5/8, and Chevron finished unchanged at 57 1/8.
* Banking stocks were generally lower with bonds, with some notable exceptions. Chemical Bank rose 3/4 to 71 1/2, and Chase Manhattan rose 1/2 to 74 3/8. The banks are close to closing their merger. But Citicorp was off 1 1/8 at 78 3/4.
* Warner Lambert fell 3 5/8 to 102 on concern about possible delays for its troglitazone drug for treating insulin resistance.
* Wells Fargo surged 6 5/8 to 257 on reports that the bank may soon announce the sale of 61 branches it must shed for its merger with First Interstate.
