Stocks Fall, 30-Year Bond Surpasses 7%
Stocks fell and yields rose for a second consecutive session Monday as investors remained nervous about higher interest rates and their impact on corporate profits.
The yield on the benchmark 30-year Treasury bond ended the day above 7% for the first time in nearly a month.
“There is fear that the Fed might raise rates in July, but the stock market is still overbought. There’s no panic, just selective profit taking,” said Marty Kearney, a trader at PTI Securities. “The Dow is still up nearly 10% this year and Nasdaq is up almost 18%.”
The Dow Jones industrial average fell 18.47 points, or 0.33%, to 5,624.71, after dropping 50 points Friday.
Declining issues led advancers by a margin of 1,295 to 991 in the broader market, on light volume of 314 million shares on the New York Stock Exchange--the slowest since Jan. 15, when 306 million shares changed hands.
The Nasdaq composite index lost 4.70 points to 1,238.73.
“I suspect we’ll have to see stabilization in the bond market” before enthusiastic buying of stocks resumes, said Ed Nicoski, a Piper Jaffray technical analyst.
Bond yields rose after the National Assn. of Purchasing Management said its May manufacturing activity index fell to 49.3 from April’s 50.1. A reading above 50 suggests a growing manufacturing economy, whereas a reading below 50 is consistent with contraction.
The report did little to alter the perception that Federal Reserve Board policy-makers could raise interest rates at their meeting next month. The index declined primarily because manufacturers sold more out of their inventories, suggesting manufacturers could pick up the pace later this year. What’s more, the index of prices manufacturers paid for raw materials rose to its highest level since July.
While Salomon Bros.’ chief equity strategist, David Shulman, does not see a Fed tightening soon, he believes a Dow 6,200 target could define a market top. “We believe that we are in the eighth inning of a nine-inning game,” he said.
Among Monday’s highlights:
* Higher interest rates had predictable effects on utility and bank stocks. Utility stocks compete with market interest rates, and banks’ profits can be squeezed on existing loans. Southern fell 1/2 to 22 5/8, BellSouth fell 1 to 39 5/8 and AT&T; fell 3/4 to 61 5/8. Wells Fargo dropped 2 to 239, First Bank System fell 1 1/8 to 59 1/4 and Banc One lost 1/4 to 36 3/4.
* Compaq Computers rose 3/4 to 49 3/8. The company said it will begin volume shipments of its ProLiant 5000 computer network servers in June.
* Syquest rose 3 3/4 to 14 3/4. The company said it has begun shipping a family of low-cost, high-performance, removable-cartridge hard disk drives priced at $299.
* Diana, whose shares have been swept higher amid Internet fervor, lost 11 7/8 to 84 1/2, after the Overpriced Stock Service newsletter made negative comments about the stock.
* Univar climbed 6 7/8 to 19 1/4 after the company received a $19.45-a-share takeover offer from minority shareholder Dutch transport and tank storage group Pakhoed. Univar’s board has endorsed the offer.
Meanwhile, grain prices fell sharply Monday as forecasts for good weather in growing areas eased fears about tight supplies. Corn prices at the Chicago Board of Trade closed down the allowable daily limit as sunny weather in the Midwest over the weekend caused optimism that the badly needed crop could overcome this spring’s planting delays.
The July 1996 through March 1997 corn contracts closed down the allowable 12-cent-per-bushel daily limit, with July at $4.65 1/4 per bushel.
After the market close, the U.S. Department of Agriculture reported that 86% of the corn crop had been planted, compared with an average 91% in the previous five years. More than half the crop was rated in good to excellent condition. The USDA also said 45% of soybeans had been planted, compared with an average 63% in the previous five years.
July wheat closed 7 3/4 cents per bushel lower at $5.21 and July soybeans ended 22 3/4 cents per bushel lower at $7.65 1/2.
Market Roundup, D8
