Stocks Take a Summer Siesta; Bond Yields Up
Stocks drifted Thursday, with most major indexes posting marginal gains despite bond yields that rose on economic data that was slightly stronger than expected.
The Dow Jones industrial average slipped 1.10 points to 5,665.78 after meandering through the session, never moving more than 17 points in either direction.
Broader measures turned positive, but the gains were modest as trading continued at a mostly sleepy, uneventful pace more typical of summer than were July’s volatile swings.
“It’s essentially been a big yawn,” said Alan Ackerman, senior vice president at Fahnestock & Co. “We’re in a vacation vacuum. Most brokers are sitting on their hands waiting for August to end, waiting for more players to return to the game.”
Trading took a cautious tone in the technology sector in advance of Thursday’s earnings reports by Hewlett-Packard and Cisco Systems, said Arthur Hogan, head stock trader at Dean Witter Reynolds. It was Hewlett-Packard’s warning last month about slowing growth that served as a key ingredient in July’s sharp market slide, climaxing a barrage of bad news from computer-related businesses.
After the close of trading, HP reported a 26% drop in third-quarter net income and warned that some problems affecting profitability could continue. Shares were unchanged at 43 1/2 before the earnings report but slid 3 1/2 to 40 in other markets after the close of the New York Stock Exchange.
Stocks opened lower, following bond prices downward after the Federal Reserve Board reported that industrial production edged up 0.1% in July.
That was the slowest advance in four months, but many economists had expected industrial production to slip in July, based on signs of manufacturing weakness in the employment report for that month. Analysts have been concerned that growing consumer demand and industrial activity might squeeze a tight labor market, leading to increased wages that would be passed on to consumers as higher prices.
Still, the industrial production report offered the latest sign that economic growth is slowing enough to avoid rapid inflation without a move to higher interest rates by the Fed, whose policymakers meet Tuesday.
Inflation lowers the value of fixed-income investments such as bonds. Rising bond yields--a key influence on borrowing costs--and higher Fed lending rates can hurt stocks by raising corporate operating costs and slowing consumer spending.
After the report, the 30-year Treasury bond yield--a key determinant of corporate and consumer borrowing costs--rose to 6.80% from 6.78%. But the yield is still well below the 7% levels seen during July’s inflation jitters.
Advancing issues outnumbered declining issues by nearly a 5-4 margin on the NYSE, where volume totaled 322.85 million shares as of 4 p.m., the sixth straight tally under 350 million and the ninth straight under 400 million.
Among Thursday’s highlights:
* Orchard Supply Hardware Stores surged 5 to 34 3/4 after it agreed to be acquired by Sears for $35 a share, or $415 million. Sears fell 1/4 to 44 5/8.
* Protein Design stumbled 33%, or 7 5/8, to 15 1/2 after news that trials of its Protovir antibody for treating inflammation of the retina in AIDS patients was halted because of lack of the substance’s effectiveness.
* Medaphis shares tumbled 21 3/8 in very heavy trading to 14 1/4, a loss of 60%. Medaphis predicted a third-quarter loss; Wall Street had expected a solid profit. Cowen & Co. and Alex. Brown & Sons cut their ratings on the medical practice management company.
Overseas, Tokyo’s Nikkei stock average fell 0.1%, Frankfurt’s DAX index rose 0.3%, and London’s FTSE-100 rose 0.2%.
Market Roundup, D6
