Stocks Slip as Rates Soar on Goods Report
Stocks closed mostly lower Friday in quiet trading, undermined by a surge in bond yields after the appearance of some strong economic data.
The Dow industrial average eased 10.73 points to 5,722.74, and broader indexes also fell modestly. Losers outnumbered winners by 13 to 10 on the New York Stock Exchange.
“Given the fact that bond [prices] plummeted, the stock market didn’t act too badly,” noted Hildegard Zagorski, analyst at Prudential Securities. “We had a respectable session on very low volume.”
For the week, the Dow gained 33.29 points, and it is within striking distance of its all-time high of 5,778.00 set on May 22.
The bond market, however, is threatening to cause more problems for stocks.
Yields jumped Friday after the government reported that durable goods orders rose 1.6% in July, a gain that far exceeded expectations. The news seemed to cast more doubt on the idea that the U.S. economy has slowed significantly this summer from spring’s heady pace.
Fresh signs of economic strength could cause the Federal Reserve Board to tighten credit by raising short-term interest rates. The Fed met on Tuesday and decided to leave rates alone, but economists warn that additional signs of brisk growth could force the central bank to tighten in order to keep inflation subdued.
Higher short-term rates could send long-term rates up as well, and that was the bond market’s concern on Friday: The yield on the benchmark 30-year Treasury bond zoomed to 6.94% from 6.84% on Thursday and now is the highest since July 31. The yield was 6.77% a week ago.
The yield on one-year T-bills surged to 5.73% on Friday from 5.62% on Thursday.
“People are concerned the Fed needs to do something sometime, and it’s really a question of when,” said Jim Bosland, who manages about $1 billion of bonds for Bank of Boston’s Private Bank.
For now, however, the stock market doesn’t seem particularly troubled by the backup in yields. But with share prices having quickly recovered from July’s sell-off, “the market’s pretty tired here,” argues Benedict Capaldi, a manager at Provident Capital Management.
“If [bond yields] can stay beneath 7%, the stock market will survive this mess,” said Ralph Bloch, chief technical analyst at brokerage Raymond James. “Anything above 7% is a real psychological negative and bonds once again become a viable alternative for money.”
Among Friday’s highlights:
* Paper and forest products stocks rose after brokerage Goldman Sachs raised its opinion of the sector. Georgia-Pacific rose 1 5/8 to 77 7/8, Willamette was up 1 3/8 to 65 and Bowater jumped 1 1/8 to 37 1/8.
* Some computer networking stocks got a lift as rumors swirled that Lucent Technologies may bid for Bay Networks. Bay jumped 1 7/8 to 27 1/8 and Lucent eased 1/4 to 37 3/8. Both companies declined comment.
Among other networkers, Xylan surged 7 to 45 3/4, and Cabletron Systems rose 1 1/2 to 64.
Also in the tech sector, C-Cube zoomed 3 3/8 to 33 3/4 on hopes that the maker of semiconductor-based encoders might get a chunk of Zenith Electronics’ $1-billion contract for supplying digital TV set-top boxes to the Americast group.
* Financial issues weakened as bond yields rose. Federal Home Loan Mortgage lost 1 7/8 to 90 1/8, Citicorp eased 7/8 to 86 7/8 and BankAmerica fell 1 1/2 to 82 1/4.
* Troubled retailer Ann Taylor fell 1 to 14 5/8 after its chief executive resigned for personal reasons.
* Philip Morris rose 1 1/4 to 88. After the market closed, battered tobacco stocks got some good news, as an Indiana jury ruled in the companies’ favor in a smoking liability suit.
* Among new issues, Pacific Coast Apparel sold 1.35 million units at 4 1/2 apiece, but the price slid to 4 1/4 on Nasdaq. The firm makes Aca Joe brand clothing.
In foreign trading, Mexico’s Bolsa index fell 24.96 points to 3,364.37.
Market Roundup, D4
