Stocks Lose Steam as Bond Jitters Persist
Blue-chip stocks edged lower Wednesday despite strength in semiconductor shares, as an early rally fizzled after bond yields climbed to their highest level in 13 months.
The rise in long-term bond yields has “most bond market and stock market participants rattled,” said Hugh Johnson, chief investment officer at First Albany Corp.
The Dow Jones industrial average fell 0.37 point to 5,668.29, its third consecutive decline. The Dow slid 9.24 points on Monday and 19.21 points on Tuesday.
In the broader market, losing issues beat gainers by a margin of 1,203 to 1,084 on heavy volume of 390.9 million shares on the New York Stock Exchange. The Standard & Poor’s index of 500 stocks fell 1.93 points to 669.04.
Meanwhile, the Nasdaq composite index, heavily weighted with technology issues, rose 4.71 points to 1,235.47. Semiconductor stocks rallied after a key report on the industry’s performance in May convinced some analysts and investors that computer chip sales may be ready to rebound.
Stocks rose strongly early in the day after the second government report in two days indicated little inflation, but when interest rates rose in a more skeptical bond market, they retreated.
The yield on the Treasury’s main 30-year bond rose to 7.19%, exceeding the 13-month high of Tuesday, when it closed at 7.12%.
“We’ve had two good inflation reports, but it’s done little to calm nerves. There are still so many crosscurrents on inflation and the Fed,” said Don Hays, market strategist at Wheat First Securities.
The Labor Department said the consumer price index rose 0.3% in May after a 0.4% rise in April. The report came a day after the department said wholesale prices fell 0.1% in May after a 0.4% increase in April, further evidence of tame inflation.
“It’s just a tug of war of emotions based on ‘Is the economy heating up or not?’ We have market indecision,” Hays said. Analysts said bond investors were nervous ahead of today’s report on retail sales in May.
Policymakers at the Federal Reserve Board are to meet July 2-3 to weigh whether to raise interest rates. Though some analysts now expect the central bank to boost rates to cool the economy, many say rates are likely to remain untouched.
Among Wednesday’s highlights:
* Chip stocks reacting to the book-to-bill ratio included bellwether Intel, up 1 1/2 to 76 3/4; LSI Logic, up 1 to 28 1/2; Texas Instruments, up 5/8 to 53 1/2; and Motorola, up 3/4 to 65 5/8.
Seagate Technology fell 1 3/4 to 48 1/2. Smith Barney cut its earnings estimates for the year ending in June.
* Networking firm Bay Networks rose 1 3/4 to 28 3/8. Morgan Stanley reiterated its strong “buy” rating.
* Biomerica shares soared 7 3/8 to 9 3/4 after the company announced plans to introduce in Europe an easy-to-use test that screens for prostate cancer in five minutes.
On commodity markets, lumber prices fell sharply for the second consecutive day amid fears that Canadian lumber will flood U.S. markets.
July lumber on the Chicago Mercantile Exchange was off the $10 limit at $340.50 per contract, the lowest close in nearly a month.
