Stock, Bonds Recover From Early Slide
Stocks and bonds rebounded from an early sell-off Tuesday to end mixed as the latest economic data was strong, but not so strong as to aggravate interest rate jitters.
The Dow Jones industrial average rose 32.18 points to 5,648.39, bouncing back from an early 55-point slide that pulled the blue-chip barometer below 5,600 for the first time since early August.
Broader measures recovered from the early drop as well. But smaller and speculative issues lagged blue-chip and large-company shares, demonstrating the lack of resolve among investors following July’s rout.
“The tradition is that any dip is a time to buy,” said Michael Metz, vice president of Oppenheimer & Co. “But [investors] are doing it nervously and sticking with the big stocks.”
Stocks followed bonds lower in the morning as last week’s inflation worries were aggravated by a published report suggesting the Federal Reserve Board is primed to raise interest rates. Two weeks ago, the central bank left its lending rates unchanged amid indications that economic growth was slowing on its own and that inflation remained under control.
But bonds rallied back for the first time in five trading days after a widely watched survey of factory purchasing managers broke last week’s string of surprisingly robust economic readings. The National Assn. of Purchasing Management reported that U.S. manufacturing growth accelerated in August, growing for a third consecutive month, but the increase was in line with forecasts.
The yield on the 30-year Treasury bond--a key determinant of corporate and consumer borrowing costs--jumped as high as 7.14% Tuesday morning before dropping to 7.05% after the purchasing managers report.
“Everybody is expecting surprises these days, and when they’re not surprised they’re relieved,” Metz said.
The strongest Dow issues were oil-related concerns, which would benefit from high prices if the latest U.S. standoff with Saddam Hussein keeps Iraqi oil off the market or disrupts production from other nearby nations.
The market’s early pessimism was compounded by a big jump in crude oil prices amid the latest turmoil in Iraq, which will delay the expected addition of new Iraqi supplies on the market.
On the New York Stock Exchange, declining issues outnumbered advancers by an 11-8 margin.
The NYSE’s composite index rose 0.77 point to 351.76 and the Standard & Poor’s 500-stock index rose 2.73 points to 654.72.
The Nasdaq composite index rose 0.79 point to 1,142.29, recovering from an early deficit of nearly 18 points. But the American Stock Exchange’s market value index, also dominated by smaller-company shares, fell 1.89 points to 557.79.
The purchasing managers’ index, while defraying concern that the economy is overheating, was in contrast to economic reports last week that showed a surprising rise in new home sales and faster-than-expected economic growth in the second quarter.
Those conflicting reports mirror the differing opinions among investors as to the economy’s strength. Both bank and gold shares jumped in response to the purchasers’ report.
Bank shares usually gain as interest rates decline because loan demand increases. For example, J.P. Morgan gained 1 to 88 1/2. Gold shares usually rise as interest rates rise, because the stocks are seen as a haven during times of inflation. Yet seven of eight gold stocks listed in the S&P; 500 rose, including Newmont Mining, up 3/4 to 53 5/8.
“I don’t buy that the economy is taking off,” said Graham Tanaka, president of Tanaka Capital Management in New York, which manages about $200 million. At the same time, the Fed “may have to raise rates a half-point in the next few weeks” to slow growth because of the momentum from the second quarter.
Among Tuesday’s highlights:
* Among oil stocks responding to Iraqi turmoil, Texaco rose 3 1/8 to 91 7/8; Exxon gained 2 1/4 to 83 3/4; DuPont was up 1 3/8 to 83 1/2; and Chevron increased 1 to 59 7/8.
* Airline stocks were bruised in reaction to rising oil prices, which make flying more expensive. The Philadelphia Stock Exchange airline index dropped 8.66 points to 355.90, led by Delta, which sank 2 to 68 7/8.
* Steelmakers, which benefit as the pace of economic expansion picks up, also climbed. USX-US Steel group rose 2 to 29 1/2 and Nucor sprinted 1 7/8 to 48 5/8.
* Shares of Arcadian, which says it is the largest producer of nitrogen fertilizers in the Western Hemisphere, rose 11% after Potash agreed to pay $25 to $27 a share for the Memphis, Tenn.-based fertilizer maker, canceling Freeport-McMoRan’s earlier bid valued at about $23 a share. Shares in Arcadian rose 2 1/2 to 24 1/2, after touching an all-time high of 24 5/8 earlier.
* HFS shares fell 3 5/8 to 56 1/4, or 6.1%, after the hotel and real estate franchiser told analysts and investors that Chief Executive Henry Silverman will sell as much as 5% of his HFS stake each year. Silverman has not sold any shares since the company went public in 1992.
Overseas, Tokyo’s Nikkei stock average rose 0.5%, Frankfurt’s DAX index fell 0.9% and London’s FTSE-100 fell 0.7%.
Market Roundup, D6
