Stocks, Bonds Pounded as Fed Worries Grow
Stocks slid with bonds Thursday as investors took cover before a key economic report that many expect to depict a worsening outlook for inflation and interest rates.
The Dow Jones industrial average fell 49.94 points to 5,606.96, the blue-chip barometer’s lowest close since Aug. 1.
Much of the damage came in the last hour as investors reacted to mounting speculation that the Federal Reserve Board may move quickly to contain inflation with an economy-slowing interest rate hike.
Broader market measures also pulled back sharply as bond prices continued to sag, sending long-term interest rates back near their highs for the year.
Bonds were weak from the start on news that the number of Americans filing first-time claims for unemployment benefits fell by 15,000.
The yield on the Treasury’s main 30-year bond rose to 7.15% from 7.09% on Wednesday, its highest close since July 8.
Investors are worried that today’s report on August employment will reveal surprisingly big gains in payroll and wage levels, which can spur inflation by driving up production costs. Rapid inflation makes fixed-income investments such as bonds less valuable, forcing down prices to improve the yield. Higher bond and Fed interest rates can hurt stocks by boosting corporate borrowing costs and slowing consumer spending.
“Unemployment claims have been dropping like a stone over the past two months. They haven’t been this low since early 1989,” said Peter Canelo, chief investment strategist at Dean Witter Reynolds. He noted that help-wanted advertising has been on the rise since bottoming out in May.
“Put it all together and there’s another big, nasty employment report in our future,” Canelo said, referring to other strong reports that have left the financial markets reeling this year.
The Standard & Poor’s 500-stock index fell 6.13 points to 649.48, and the New York Stock Exchange’s composite index fell 2.73 points to 349.64. It was the worst finish in more than a month for the two indexes.
The Nasdaq composite index fell 18.16 points to 1,125.66, and the American Stock Exchange’s market value index fell 0.63 point to 556.71.
The Wilshire Associates Equity Index--the market value of NYSE, Amex and Nasdaq issues--was 6,394.66, down 60.137 points, or 0.93%.
Retail and technology stocks, both vulnerable to the impact of higher interest rates on consumer spending, were among the hardest hit. Retail shares were also weighed down by a mixed showing in the monthly sales reports released by big national chains.
Among Thursday’s highlights:
* Gap, the NYSE’s most active issue, plunged 4 7/8 to 29 after reporting unchanged sales in August, and Sears skidded 1 5/8 to 43 1/8 after saying sales in U.S. stores rose 4.4%. J.C. Penney, whose sales rose 7%, dropped 5/8 to 54 7/8.
* Among computer industry laggards, Hutchinson Technology, a maker of computer disk drive assemblies, dropped 5 1/64 to 34. The company said it is only breaking even for the quarter ending in September. IBM, the Dow’s only technology component, slid 1 1/2 to 113 1/8.
Macromedia sank after the company said earnings could fall 10% from the previous quarter ended in May and as analysts cut their investment rating. It dropped 3 11/16 to 19 1/8.
Hewlett-Packard dropped 1 1/4 to 43, stung by news that rival printer maker Lexmark International is forming a marketing alliance with Polaroid to beef up its color printer product line. Still, Lexmark fell 15/16 to 16 7/8. Polaroid was unchanged at 42 3/4.
* Financial companies fared poorly as the possibility of higher interest rates loom. J.P. Morgan dropped 1 5/8 to 87 amid higher bond yields.
Chase Manhattan, the nation’s largest bank, dropped 3/4 to 73 7/8. NationsBank fell 1 3/4 to 82.
Overseas, Tokyo’s Nikkei stock average rose 0.9%, Frankfurt’s DAX index fell 0.1%, and London’s FTSE-100 rose 0.4%.
Market Roundup, D6
