Stocks Slide as Interest Rate Worries Spark Sell-off
U.S. stocks on Monday followed Friday’s plunge with another round of losses as concern mounted that rising interest rates will curb spending by consumers and businesses.
Shares of banks and retailers paced the retreat.
Friday’s bond market rout in reaction to a report showing unexpectedly strong jobs growth rattled stocks for a second day, as some investors speculated that the Federal Reserve Board would raise interest rates next month to check inflation.
The Dow Jones industrial average fell 37.31 points to 5,550.83 after tumbling 114.88 points, or 2%, on Friday--its biggest percentage drop since an employment report on March 8 sent stocks reeling.
“There are a lot of people talking about the Fed raising rates,” said Arno Rayner, president of Rayner Associates, which manages $200 million. In 1994, when the central bank boosted borrowing costs six times, the Dow industrials rose just 2.14%.
Among broad market indexes, the Nasdaq composite index, filled with computer and semiconductor issues, fell 9.52 points to 1,148.83 after rising as high as 1160.98. The Standard & Poor’s 500 Index slumped 4.90 points to 652.54.
Gains in shares of computer-related companies helped cushion the blow. Analysts said semiconductor, software and computer makers reported the biggest earnings gains in the second quarter. Motorola kicks off the reporting season today when it posts results after the close of trading.
“The best antidote for an economy characterized by rising rates is strong corporate earnings growth,” said Jack Shaughnessy, director of research at Advest Inc.
Overall, 1,716 stocks fell and 742 rose on the New York Stock Exchange, the third straight day that declining issues beat advancing issues.
The specter of inflation helped drive the yield on the 30-year Treasury bond as high as 7.24%,before it fell back to 7.19%, unchanged from Friday’s close.
With the yield near its highest in a year, some investors said stock prices won’t rebound any time soon.
“Any attempt to rally will fail,” said Michael Metz, chief investment strategist at Oppenheimer & Co. “This time around, it’s not a buying opportunity.”
Higher rates are bad for stocks because they encourage people to put their money in fixed-rate investments that are perceived as less risky. They also raise the cost of borrowing, which hurts future corporate profits.
Among Monday’s highlights:
* Several key tech issues advanced. Motorola climbed 1 7/8 to 67 3/4; IBM rose 1/2 to 98 3/8; Cisco Systems rose 7/8 to 56 7/8; Broderbund Software jumped 1 to 33; and Intel climbed 3/4 to 73.
* But shares of America Online fell 3 1/8 to 38. On Friday, the company agreed to pay its subscribers as much as $22 million in free online time, plus cash, to settle 11 private class-action lawsuits about disclosure and billing practices.
* Shares of securities firms, banks and other lenders fell, sending the NYSE financials index down 4.42 points to 286.47. Wells Fargo fell 4 1/2 to 230 3/4, Travelers Group sank 1 to 43 1/2 and Allstate lost 5/8 to 43 7/8.
* Shares of retailers dropped for a second day on concern that rising interest rates will make cash-strapped shoppers even more reluctant to take on more debt. Wal-Mart Stores fell 1/2 to 24, Sears dropped 1 1/8 to 45 7/8, Dayton Hudson slipped 2 to 98 7/8 and Kmart fell 1/8 to 11 3/4.
* Shares of La Jolla-based Agouron Pharmaceuticals rose as much as 1 3/4 to 44 3/4, before retreating to 42 3/4, down 1/4. A study released this week at an AIDS conference in Vancouver, British Columbia, said the company’s Viracept drug, when administered in combination with two other drugs, reduced the level of HIV in patients’ blood below detectable levels.
In commodities trading, August crude oil soared to a contract high of $21.85 a barrel but later fell back to close at $21.27, up six cents a barrel, after Hurricane Bertha swept through the U.S. Virgin Islands and left less damage than expected.
Meanwhile, Mexican stocks were hammered by expectations that local interest rates will skyrocket, causing the Bolsa to tumble 2.29% to 3,034.85--the stock market’s lowest close since April 9.
In London, the FTSE-100 ended little changed, falling 1.7 points to 3,741.5 in light trading, but in Frankfurt, German stocks tumbled 32.45 points to 2,551.04.
Tokyo stocks ended sharply lower, with the Nikkei average falling 307.48 points at 21,924.94.
The dollar was little changed near a 29-month high, standing at 110.80 Japanese yen in New York, down from 110.85 Friday.
