Yields Drop to 6 1/2-Month Low; Stocks Mixed
Long-term bond yields plummeted Tuesday to their lowest level since April, as the latest economic data suggested that upward pressure on worker wages is diminishing.
But the stock market greeted the powerful bond market rally with mixed emotions: Blue-chip stocks gained, with the Dow Jones industrials rising 34.29 points to 6,007.02. But smaller issues took another tumble.
The bond market was positively jubilant. The yield on the bellwether 30-year Treasury bond plunged from 6.83% on Monday to 6.68% on Tuesday--its lowest level since April 4. Shorter-term yields were also sharply lower.
It was the best one-day rally in bonds in 16 months, according to Bloomberg Business News.
The catalyst: The government said total employment costs increased just 0.6% in the third quarter, less than the 0.8% average gain economists had forecast and a sign that overall wage inflation isn’t accelerating, despite the tight labor market.
Because the Federal Reserve Board has hinted that strong wage inflation could force it to tighten credit to slow the economy, Tuesday’s report left investors thinking “no [Federal Reserve Board] tightening for the rest of the year, and after the first of [next] year, there might be thinking of a Fed loosening,” said Michael LaTronica, analyst at Gruntal & Co.
In addition to the wage cost report, another report Tuesday pointed to a less robust economy. The Conference Board, a New York-based private research group, said its consumer confidence index fell by 5.6 points to 106.2 this month.
The bond market still faces a rash of additional data this week, culminating with Friday’s report on October employment.
Meanwhile, in the stock market, blue chips’ gain wasn’t mimicked in the broad market. The Nasdaq composite index of mostly smaller stocks fell 12.84 points to 1,203.05. The Russell 2,000 index of smaller stocks fell 2.05 points to 338.05, its lowest since Sept. 11.
Losers swamped winners by 24 to 16 on Nasdaq, even though winners had a slight edge over losers on the New York Stock Exchange.
Analysts said more investors may be expecting an economic slowdown and thus are chasing after bigger stocks perceived to be safer havens.
Others joked that the NYSE got a lift only because Yankees Manager Joe Torre was on hand to ring the opening bell.
Among Tuesday’s highlights:
* Interest-rate-sensitive shares bounded higher as rates fell, with Wells Fargo up 3 5/8 to 264 1/8, Merrill Lynch up 1 1/4 to 68 7/8, Federal Home Loan Mortgage gaining 2 1/8 to 99 3/8 and Citicorp up 2 1/8 to 97 1/8.
* Technology stocks were broadly lower after a Salomon Bros. analyst warned that computer retailing giant CompUSA was experiencing flat sales in recent weeks. CompUSA dove 5 1/2 to 51 5/8, and personal computer makers’ shares tumbled. Compaq slid 3 1/8 to 67 1/2, Dell Computer slumped 4 7/8 to 76 1/8 and Gateway 2,000 was off 1 1/8 to 46 1/8.
Among other techs, Intel lost 1 5/8 to 104 3/8, Apple fell 1 1/4 to 23 1/4 and Western Digital lost 1 3/4 to 47. DSP Communications tumbled 17 1/8 to 35 1/4 after announcing plans for a $400-million merger with Proxim, whose stock rose 2 51/64 to 21 1/2.
* Cosmetic giants Revlon and Estee Lauder both announced higher third-quarter profits, and Revlon stock gained 3/4 to 34 1/8; Lauder fell 5/8 to 43 7/8.
* Donna Karan sank 3 1/2 to 15 1/4. The fashion design company forecast break-even fourth-quarter results, citing weakness at its beauty division.
In commodity trading, oil prices fell as traders bet that low inventories of heating oil were finally starting to show increases ahead of winter. And copper futures prices dropped 5% on speculation that Sumitomo Corp. and China have been buying the metal and storing it to reduce supplies and increase prices--intending to sell once prices are high enough.
