Profit Taking Leaves Stocks Lower; 30-Year Yield Rises
Stocks drifted lower Monday in unusually quiet trading, pausing from a four-session rally with bonds, as interest rates edged higher before this week’s big auction of new U.S. Treasury debt.
The Dow Jones industrial average fell 5.55 points to 5,674.28, halting a powerful 245-point advance spurred by four days of encouraging economic news. The Dow had started the day higher, moving within four points of 5,700, but then backed away amid some profit taking.
Bonds, the main driving force for stocks last week, lost momentum amid the usual concerns about how well the Treasury market will absorb the $39 billion in new notes and bonds to be auctioned today, Wednesday and Thursday in the federal government’s quarterly refunding.
“The refunding is fairly large, but it’s not expected to upset the bond market too much,” said Dan Ascani, president and research director at Global Market Strategists Inc. of Gainesville, Ga. “Once the refunding clears, we should be ready to move up again in both stocks and bonds.”
The yield on the Treasury’s main 30-year bond rose to 6.76% from 6.74% on Friday.
Among stocks, declining issues outnumbered advancers by a slim margin on the New York Stock Exchange, where volume totaled just 303.77 million shares, making it the second-slowest full-session of the year.
The NYSE’s composite index fell 1.06 points to 352.81, and the Standard & Poor’s 500-stock index fell 2.26 points to 660.23.
The Nasdaq composite index fell 4.39 points to 1,120.53, and the American Stock Exchange’s market value index fell 0.38 point to 548.59.
Notably, a somewhat contrary economic indicator failed to alarm the markets, which are starting to muster some stability after July’s nail-biting gyrations on inflation- and corporate-profit worries.
The Conference Board, a private research group, reported that its widely watched index of leading economic indicators rose in June to the highest level ever. But the reading only slightly exceeded forecasts and did little to dampen the more optimistic mood that has taken hold in the markets.
On Friday, stocks rallied broadly on strong signals that the economy isn’t growing at an inflationary pace. The government reported that job creation and hourly wages slipped in July, easing inflationary pressures that would have made the Federal Reserve Board more likely to pursue an economy-slowing hike in interest rates.
“The fear of the Fed has fallen by the wayside, and now attention can turn to what third-quarter profits will be,” said Bill Meehan, market analyst at Prudential Securities.
Still, for many investors, inflation and interest-rate anxieties won’t be fully calmed until after the central bank’s Aug. 20 policy meeting.
Among Monday’s highlights:
* News of a $2.1-billion merger between PacifiCare Health Systems and FHP International sent their respective shares soaring, with PacifiCare gaining 5 to 72 3/4 and FHP jumping 7 3/8 to 35 1/4.
* Pharmacia & Upjohn, a Swedish-American drug maker, rose 1/2 to 43 3/8 after reporting a 12% gain in second-quarter profit from operations.
* Shares of Ford fell 1/4 to 33 5/8 after it said sales in July dropped 0.1%. Rivals Chrysler, up 1/2 to 29 7/8, and General Motors, also up 1/2 to 51, reported mixed results for the month last week.
* EZ Communications shares rose 9 5/8 to 42 1/8 after the television and radio station operator said it agreed to be purchased by American Radio Systems for $456.5 million. American Radio fell 3 to 36 1/2.
Overseas, Tokyo’s Nikkei stock average rose 0.7%, Frankfurt’s DAX index rose 0.5%, and London’s FTSE-100 rose 0.5%.
Market Roundup, D8
