Rate Fears Keep Stocks at Bay
Blue-chip stocks ended virtually unchanged Tuesday as buyers were afraid to chase the market to a third straight record high amid renewed fears of a Federal Reserve Board interest-rate increase.
Most broader measures retreated as bonds fell and long-term interest rates climbed back above 7%. But the technology-laden Nasdaq composite index rose, notching its first close above 1,200 since mid-June. An encouraging forecast from Intel, made after the close of trading Monday, lent strength to other tech shares. Intel rose 5 5/8, to 94 1/4.
The Dow Jones industrial average ended off just 0.37 of a point at 5,888.83 after setting records on Monday and Friday.
“We’re just giving a wee bit of ground after a sharp move on the upside,” said Alan Ackerman, a market strategist at Fahnestock & Co. “All signs show the market is working higher, but we have some weakness. There’s the fear the Fed will move to raise interest rates.”
The interest-rate sensitive blue chips took their cue from bonds after comments by a senior Fed official led investors to believe interest rates might be raised. At one point, the Dow index was down 40 points before it began a late-afternoon recovery. The unidentified official said that eight out of 12 Fed banks have asked for an increase in the discount rate, the rate the Fed charges banks for direct loans. Fed rate policymakers will meet next week.
The yield on the benchmark 30-year Treasury bond rose above the psychologically important 7% level, closing at 7.02%, up from 6.94% on Monday.
News of the Fed official’s comments “sent some renewed fear into the bond market,” inspiring “some old-fashioned profit taking after a substantial rise” in stock prices, said Peter Cardillo, director of research at Westfalia Investments.
Bond traders also were troubled by a report that industrial production in August rose slightly more than expected. That news aggravated lingering worries about rising production costs.
The prospect of higher interest rates and therefore slower consumer spending and higher company operating costs was enough to slow the stock market’s sudden foray into record territory.
Declining issues outnumbered advancers by nearly a 3-2 margin on the New York Stock Exchange, where volume totaled 442.59 million shares as of 4 p.m., up slightly from Monday’s pace. The Standard & Poor’s 500-stock list fell 1.04 points to 682.94, and the NYSE composite index fell 0.99 point to 364.43. Both closed at record highs on Monday.
Among market highlights:
* After Intel said that its third-quarter semiconductor sales would be stronger than expected, shares of PC makers rallied on the implication that rising PC demand was responsible. Dell rose 4 to 83, Gateway 2000 rose 2 7/16 to 49 7/16 and Compaq gained 3 3/8 to 64 3/4.
* Tobacco stocks rose on news that a Florida judge had thrown out most of a suit brought by that state seeking reimbursement for the Medicaid costs of treating smokers. Philip Morris, up 2 1/8 at 94 1/8, was the Dow’s strongest issue.
* The stock of funeral home operator Loewen climbed 6 1/4 to 40 but that of Service Corp. slipped 1/8 to 30 1/8 after Service offered to buy Loewen in a stock deal valuing Loewen at $43 a share. Loewen said it would review the offer.
* United Cos. Financial slumped 3 5/8 to 33 1/2 after it said some brokers cut their earnings estimates for the company amid disappointing results for the latest quarter.
Overseas, Tokyo’s Nikkei-225 stock average rose 2.2%, Frankfurt’s DAX index fell 0.1% and London’s FTSE-100 was off 0.1%.
Market Roundup, D5
