Dow Eases as Yields Surge; Nasdaq Gains
Blue chip stocks’ rally ran out of steam Tuesday, but they put up a good fight.
The Dow Jones industrial average eased 0.37 point from Monday’s record high to 5,888.83, beset by a fresh surge in bond yields. But the Dow fought back from a midday loss of more than 20 points.
In the broad market, technology issues led the Nasdaq composite index up 9.35 points to 1,203.31, after computer chip industry leader Intel said sales are running ahead of estimates this quarter.
The Dow’s record run was interrupted by familiar worries: New reports suggested that the Federal Reserve Board may decide to raise short-term interest rates at Tuesday’s meeting, even though recent economic data have indicated that inflation is subdued and that the economy may be slowing from summer’s strong pace.
Reuters news service quoted an unnamed senior Fed official as saying that eight of the 12 regional Fed bank presidents have asked for an increase of at least one-quarter percentage point in the Fed’s discount rate, its rate on direct loans to banks.
However, analysts noted that the requests most likely were made before Friday’s government report of benign inflation in August. And many economists believe that the Fed’s governors, especially Chairman Alan Greenspan, are prepared to reject the request to tighten credit, preferring to see if the economy continues to slow.
Nonetheless, interest rates jumped across the board Tuesday. The 30-year Treasury bond yield surged to 7.02% from 6.94% Monday. The 3-month T-bill yield rose to 5.31% from 5.21% Monday.
Bond traders also were troubled by a report that industrial production in August rose slightly more than expected.
“The probability of a rate hike moved a little bit higher,” argued Matthew Gelfand, who helps manage $500 million at Strategic Investment Partners.
On Wall Street, losing stocks outnumbered winners by 15 to 10 on the New York Stock Exchange, in active trading.
But analysts said stocks’ relatively small losses in the face of higher rates were a bullish sign. “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. in New York.
Among Tuesday’s highlights:
* Intel’s positive news drove its shares up 5 5/8 to a record 94 1/4, and other personal-computer related stocks rocketed. Compaq jumped 3 3/8 to 64 3/4, Microsoft surged 2 3/8 to 133 7/8, Dell gained 4 to 83 and Seagate soared 4 1/8 to 57.
* 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 jumped 2 1/8 to 94 1/8.
* Many industrial issues continued to gain. Phelps Dodge rose 7/8 to 61 5/8, Hercules jumped 3 to 52 1/4 and Georgia-Pacific added 3/4 to 79 1/4.
* On the downside, bank stocks were lower after a report that credit-card delinquencies rose again. Wells Fargo fell 3 1/4 to 260 3/4, BankAmerica dropped 1 3/8 to 81 1/2 and Chase Manhattan was off 1 3/4 to 78 1/8.
Market Roundup, D5
