Dow Falls on Inflation Jitters

L.A. Times Archives

April 11, 1996 12 AM PT

From Times Wire Services

A steep sell-off propelled by inflation jitters sent the Dow Jones industrial average tumbling Wednesday, extending losses to more than 200 points, or almost 3.6%, over four straight sessions.

Traders scurried in the last hour of trading to position themselves for a report on wholesale prices due out this morning, mindful of the frenzied sell-off that followed last Friday’s jobs data for March.

The Dow industrials fell 74.43 points Wednesday to close at 5,485.98, with most of the losses coming in the final hour. At 3 p.m. EDT, the Dow was down 40 points. It had dropped 87 points by 3:45 before recovering some ground as the session ended.

The retreat has brought down the Dow to its lowest level since March 8, when the blue-chip index stumbled 171 points on signs of strong employment gains.

But these cumulative losses are not anywhere near the correction of 10% or more that many market analysts have been expecting.

Stock prices have suffered from higher interest rates, which make bonds relatively attractive compared to stocks, and recent strength in the U.S. dollar, which may hurt the profits of companies with large sales outside the U.S., traders said.

Inflation-wary bond traders have been nervous not only about economic growth but also about higher commodity prices.

The Commodity Research Bureau index--a barometer of commodity prices--climbed 3.09 points, or 1.2%, to 258.91. Earlier in the day, the index hit an eight-year high of 259.10. Grain prices in particular have been breaking records, capping an up trend underway since late 1994. Crop failures overseas have boosted demand for U.S. grains at a time when government policies have led to steadily shrinking grain stockpiles.

The benchmark 30-year U.S. Treasury bond yield rose to 6.94% from 6.83% on Tuesday.

In the stock market, declining issues led advancers by nearly 2 to 1 on the New York Stock Exchange. Volume was moderately heavy at 473.79 million shares as of 4 p.m., above Tuesday’s pace.

Broad-market indexes also finished lower, but the Nasdaq composite put up a good fight until just before the close. It closed down 3.87 points to 1,105,28.

The NYSE composite index fell 4.20 points to 340.93. The Standard & Poor’s 500-stock index fell 8.69 points to 633.50.

The sudden sell-off late Wednesday left market participants reeling. “The phone rang; the Dow was down 25,” said Larry Wachtel, a market analyst at Prudential Securities. “I got off the phone five minutes later and the Dow was down 80.”

The final sell-off was heightened by computer-driven programs, but inflation fears were the fundamental reason behind the market rout.

“The background is simply the price rises that we’ve been seeing in oil, grain and other commodities,” Wachtel said. “The CRB index hit an eight-year high; grain prices are at a four-year high.”

The inflation jitters were particularly prominent ahead of today’s scheduled release of a government report on wholesale prices and Friday’s release of the consumer price index for March. Stocks and bonds have been trading for some time as if inflation was not a big problem.

Stocks were hard hit in sectors such as banking, finance and utilities, which usually respond first to changes in interest rates. The Dow Jones utility index fell 3 points, or 1.43%, to 206.89. Citicorp shares dropped 2 3/4 to 76 7/8.

But some stocks tied to commodity prices, such as oil and paper issues, rose. Oil company Kerr-McGee rose 3/4 to 65 7/8. Paper maker Champion International rose 1 3/8 to 47 1/4.

And stocks of gold companies advanced on the metal’s reputation as a hedge against inflation. Newmont Mining rose 1 3/8 to 59 1/4.

Among other market highlights:

* Technology stocks weathered a semiconductor industry report issued after the close of trading Tuesday that signaled weaker demand for computer chips.

Chip stocks held firm for most of the day but sank at the end. In Nasdaq trading, Intel shares fell 1/8 to 61 3/4, and Advanced Micro Devices slipped 1/8 to 17 1/2. IBM slid 1 7/8 to 116.

But chip maker Motorola surged 3 3/4 to 56 1/4. The company reported a slight increase in first-quarter profit and a 16% increase in sales. Hewlett-Packard rose 7/8 to 97 3/4 and Compaq rose 3/8 to 39 3/4.

* AT&T; rose 7/8 to 61 3/8. Merrill raised its rating and said it believes a trading opportunity has developed in the stock.

* Philip Morris lost 2 to 87 3/8. Lawyers suing tobacco companies said they have obtained industry documents from a woman who charges that her former fiance, a Philip Morris executive, got her hooked on cigarettes.

Tokyo stocks rose, shrugging off worries over high-tech issues. Brokers said Wednesday’s resilience proved the underlying strength of the market. The 225-share Nikkei average rose 47.53 points to 21,791.70, hitting a four-year high.

European stocks also closed higher, with continued confidence that interest rates there are falling. London’s FTSE-100 index rose 8.8 points to 3,767.4, and Frankfurt’s DAX index ended at a record high as the strong dollar gave a boost to export-oriented companies. The 30-share blue-chip DAX index jumped 26.76 points to 2,530.02.

* COMMODITIES SURGE

Wheat, corn prices soar. D3

* BOFFO BOLSA

Mexican stocks in rally, but can it continue? D3

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Commodity Surge

How prices of key commodities have jumped this year. Gains for nearest-term futures contracts on various U.S. exchanges:

Coffee: +25.3%

Oil: +23.8%

Corn: +20.6%

Lumber: +11.3%

Wheat: +7.4%