Early Stock, Bond Rallies Lose Steam
Stocks turned mostly lower with bonds Tuesday as enthusiasm about an encouraging inflation report proved fleeting amid uncertainties over upcoming economic data.
The Dow Jones industrial average fell 19.21 points to 5,668.66, retreating from an early advance of nearly 41.
Most broad-market measures also turned negative as bonds shed early gains inspired by news that wholesale prices fell in May.
Gold tumbled to its lowest level in 15 months after a government report on wholesale prices in May convinced traders that there will be little demand for the precious metal as a hedge against inflation.
The unexpected drop in the producer price index--which had raced ahead at worrisome levels in March and April--muted concerns generated by Friday’s report on May employment, the latest in a series of monthly readings that revealed inflationary pressures from surging payroll and wage levels.
But by midafternoon, bonds began to slide, sending long-term interest rates back to their highest levels in more than a year.
After the producer price report, the yield on the 30-year Treasury bond--a key determinant of corporate and consumer borrowing costs--edged as low as 7.08% from Monday’s 7.12%. Later, however, the yield moved back and was at 7.12% in late trading. Before Friday’s employment report, the benchmark yield had stood at 6.9%.
Analysts had few clear explanations for the bond market’s late slide. Some attributed it to inflation jitters before today’s report on consumer price inflation and Thursday’s report on May retail sales.
Others noted an afternoon report showing that retail sales fell in the first week of June compared with the prior week but jumped compared with the same week a year earlier.
“The attention span of the market is very short these days,” said Ralph Bloch, chief market analyst at Raymond James & Associates in St. Petersburg, Fla. “It’s part of a nervous scenario.”
Regardless of the explanation, most analysts agreed that the stock market would not be able to advance much further if interest rates continue to rise, increasing corporate expense, slowing consumer spending and making bonds an increasingly attractive investment.
Declining issues outnumbered advancers by a slim margin on the New York Stock Exchange, where volume totaled 401.0 million shares as of 4 p.m., up sharply from Monday’s anemic pace before the PPI report.
The NYSE’s composite index fell 0.62 points to 359.55, and the Standard & Poor’s 500-stock index fell 1.19 to 670.97.
Among the market highlights:
* The technology-heavy Nasdaq composite index rose 0.72 to 1,230.76 as several industry bellwethers posted gains. Intel added 1 1/8 to 75 1/4, and Microsoft rose 1 1/2 to 122 1/8.
* Storage Technology gained 3 3/8 at 42 7/8, rising for a second day after IBM announced a deal to sell Storage Technology’s computer-disk storage systems under the IBM brand name.
* Infoseek, an Internet search services company, rose 2 to 14 in its first day of trading.
* Microsoft rose 1 1/2 to 122 1/8 after news the company agreed to buy eShop, an electronic-commerce company, for an undisclosed price.
* Among the Dow’s biggest decliners, Boeing fell 1 1/2 to 84 7/8, General Electric fell 1 3/8 to 84 5/8 and Sears fell 1 1/4 to 51 3/4.
* Gold stocks fell as inflation fears ebbed and gold prices resumed their slide. * British Airways rose 2 1/8 to 86 3/4 in U.S. trading, and AMR Corp. fell 5/8 to 93 3/8. The carriers announced plans for a “broad alliance” starting in April 1997 when they would be able to coordinate passenger and cargo businesses between Europe and the United States.
Overseas, Tokyo’s Nikkei stock average rose 0.5%, Frankfurt’s DAX index fell 0.5% and London’s FTSE 100 rose 0.7%.
