Stocks Slip as Rates Soar on Goods Report
Blue-chip stocks ended lower Friday as a surprisingly strong July durable goods report sent Treasury bond yields soaring to the highest level in more than three weeks.
The Dow Jones industrial average finished down 10.73 points at 5,722.74. For the week, it was up 33.29 points.
“Given the fact that bonds plummeted, the stock market didn’t act too badly,” said Hildegard Zagorski, an analyst at Prudential Securities. “We had a respectable session on very low volume.”
The Nasdaq composite index lost 0.91 point to 1,143.05.
The yield on the benchmark 30-year Treasury bond stood at 6.94% on Friday, the highest since July 31--up from the 6.84% of Thursday’s close.
Inflation-sensitive bonds were sent reeling by news that July durable goods orders had risen 1.6%. Most economists had expected a rise of around 0.3%. That data and suppositions that job growth expanded in August reignited talk that the Federal Reserve Board might consider raising short-term interest rates at the meeting of its policy-setting Federal Open Market Committee next month. This week, this Fed decided to leave lending rates alone.
With stocks having quickly recovered from July’s meltdown, earnings growth slowing and money going to stock mutual funds at a rate far below what was seen earlier this year, “the market’s pretty tired here,” said Benedict Capaldi, a manager at Provident Capital Management. “It’s waiting to roll over of its own weight, and investors are looking for excuses here. They were clearly given one this morning.”
The recently favored interest-rate-sensitive financial sector experienced some brisk selling. Freddie Mac lost 1 7/8 to 90 1/8, Fannie Mae lost 1/2 to 32 1/2, Citicorp was off 7/8 to 86 7/8 and J.P. Morgan was off 1 1/8 to 91 3/8.
Analysts said the broader market showed resilience in the face of stiff bond selling.
“If rates can stay beneath 7%, the market will survive this mess,” said Ralph Bloch, chief technical analyst at Raymond James. “Anything above 7% is a real psychological negative and bonds once again become a viable alternative for money.”
The Dow 30 recovered in late trading with a rebound in the shares of Philip Morris, which ended up 1 1/8 to 88. The steadiness in tobacco shares came as President Clinton declared that tobacco will for the first time be subject to Food and Drug Administration regulation.
Among market highlights:
* Paper and forest products stocks rose after Goldman Sachs raised its opinion of the sector. Georgia-Pacific rose 1 3/4 to 77 7/8, Willamette was up 1 3/8 to 65 and Boise Cascade rose 5/8 to 35.
* Bay Networks rose 1 7/8 to 27 1/8 and was the most active New York Stock Exchange issue, because of renewed speculation of a possible buyout by Lucent Technologies. Both companies declined comment.
* C-Cube climbed 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 consortium. Zenith, which climbed 5 1/2 Thursday on news of the Americast deal, gave back 2 to 14 7/8.
Mexican stocks ran out of steam Friday after a week of record highs gave way to profit-taking, although stock prices made up ground toward the close of trade after falling through support levels.
The IPC Bolsa index of leading stocks fell 24.96 points, or 0.74%, to 3,364.37. Traders said the fact that stocks bottomed out and rebounded is a strong sign that stocks are consolidating in preparation to rise again. But volume was low at 62.57 million shares in 2,708 transactions. Losers outpaced gainers 51 to 31. American Depositary Receipts in benchmark Telmex fell 3/8 to 33 3/4.
Elsewhere overseas, Tokyo’s Nikkei stock average fell 0.6%, Frankfurt’s DAX index fell 0.1% and London’s FTSE-100 rose 0.4%.
Market Roundup, D4
