Stocks Mixed as Yields Jump; Oil Rises Again
Stocks on Tuesday generally held onto their gains of the previous two sessions, although key indexes were mixed as bond yields rebounded.
In commodity markets, oil prices reached their highest level since April on renewed tension between the United States and Iraq.
On Wall Street, the Dow industrials slipped 6.66 points to 5,727.18 after surging 53 points Friday and nearly 74 points Monday.
In the broad market, most major indexes closed slightly higher. Winners and losers were nearly evenly matched on the New York Stock Exchange, in the heaviest trading since early August.
Stocks were held back Tuesday by another rise in bond yields, which have seesawed over the last five sessions as investors have mulled the probability of an official interest rate hike soon by the Federal Reserve Board.
Because the economy isn’t showing convincing signs of slowing, many analysts now believe that the Fed is poised to boost its key short-term interest rates later this month to try to slow business activity and keep inflation from revving up.
What is unclear is how much the Fed would have to raise rates to achieve its goals. And that’s what’s keeping the bond market off balance: Traders aren’t sure how high long-term yields might go, because they aren’t sure what will happen with short-term rates or with inflation.
On Tuesday, the bellwether 30-year Treasury bond yield rose to 7.11% from 7.06% on Monday after Fed Gov. Janet Yellen suggested that the central bank is increasingly worried about the potential for higher inflation.
“We’re in an inflationary danger zone,” Yellen told Reuters in an interview. “There’s definitely a chance inflation will rise.”
Yellen’s remarks are “pretty bearish for bonds,” said one trader. “It just serves as a reminder” that the economy’s growth could soon quicken inflation, which erodes the value of bonds.
But another Fed governor, Lawrence Lindsey, gave a more upbeat assessment of the inflation outlook. Lindsey told Bloomberg Business News that “the jury is still out” on whether a Fed rate hike is needed.
Analysts say the bond market will be closely monitoring additional economic data this week, including the August wholesale inflation report Thursday and the August consumer inflation report Friday.
Meanwhile, the oil market isn’t a comfort to anyone concerned about inflation: Crude oil futures rose Tuesday on reports that Iraq is rebuilding its air defense system and again fired missiles at U.S. aircraft. On the New York Merc, crude for October delivery rose 39 cents to $24.12 a barrel--the highest since April 17.
Among Tuesday’s highlights:
* ITT slumped 7 3/4 to 48 1/4 on worries about weaker casino earnings in the near term.
* Auto stocks fell in active trading, which some analysts said reflected investors’ worries about higher interest rates. Ford lost 1/4 to 31 5/8. It said its Latin American operations will suffer a loss in the second half that will be roughly twice as large as the region’s first-half loss of $130 million. GM eased 3/8 to 47 7/8 and Chrysler lost 3/8 to 28 3/8.
* Tech issues were mixed. Dell rose 2 1/8 to 71 and IBM added 1/2 to 118 3/8, while Xylan fell 1 to 40 1/4 and Cabletron lost 1 to 56 1/4.
Market Roundup, D6
