Bond Prices Rise as Worries Over Inflation Ease
Some mild economic readings helped ease inflation worries in the bond market, lowering interest rates, but stocks managed only marginal gains in nervous trading before a key Federal Reserve Board meeting this week.
The Dow Jones industrial average fell 6.93 points to 6,806.16, having recovered from an early 46-point slide.
“It’s like hurry-up-and-wait time,” said Robert Froehlich, chief investment strategist at Van Kampen American Capital.
Broader indicators were mostly positive, but few strayed far from Friday’s closing levels.
But even the tiny advance was enough to set a new high for the Standard & Poor’s 500-stock list, underscoring the hesitance among investors to bid up a pricey market just before the Fed’s pivotal meeting on interest rate policy, as well as some key economic data due later in the week.
“We’re just seeing the market take a bit of a rest from a pretty fast start in January,” said Jim Weiss, deputy chief investment officer for equities at State Street Research & Management Co. in Boston.
For the second straight session, stocks failed to respond to a strong day in the Treasury bond market, which rallied after the National Assn. of Purchasing Management reported that growth of the nation’s manufacturing economy slowed in January following months of surprising strength.
As bond prices rose Monday, the yield on the 30-year Treasury bond fell to 6.74% from 6.78% on Friday.
The NAPM report, one of the earliest readings on January’s economic activity, comes a day before a Federal Reserve meeting on whether the central bank needs to raise interest rates to slow the economy as protection against inflation.
Over the last month, a series of surprisingly robust economic readings eroded optimism that economic growth had slowed enough to keep a lid on inflationary pressures such as rising production costs. However, despite the acceleration in activity, most recent inflation readings have been benign.
Also suggesting some moderation in the economy were Commerce Department reports saying construction spending fell 0.7% in December, while personal incomes outpaced consumer spending, indicating that demand didn’t increase at an inflationary pace.
Advancing issues outnumbered decliners by an 11-9 margin on the New York Stock Exchange. The S&P; 500 rose 0.57 point to 786.73, skipping past the record close at 786.23 on Jan. 22. The NYSE’s composite index rose 0.50 point to 412.48, just 0.32 shy of a new high.
The Nasdaq composite index fell 3.80 points to 1,376.05 despite some continued strength among bellwether technology issues. The Russell 2,000 index of smaller companies rose 0.08 point to 369.53.
Among Monday’s highlights:
* Tech issues on the positive side included Intel, up 1 5/8 to 163 7/8; Sun Microsystems, up 1 1/8 to 32 7/8; and Microsoft, up 3/8 to 102 3/8.
But Texas Instruments lost 2 5/8 to 75 3/4, Applied Materials fell 1 3/8 to 48 and Motorola dropped 1 1/2 to 66 3/4 after the maker of semiconductors and cellular phones said its computer unit will reorganize into two divisions, for commercial and technical products.
And Cisco Systems slid 1 1/2 to 68 1/4.
* Financial stocks were able to muster some momentum from the bond market’s gains. Citicorp rose 2 to 118 3/8, Chase Manhattan gained 1 1/4 to 93 3/4 and BankAmerica rose 1 5/8 to 113 1/4.
* Kysor Industrial jumped 5 5/8 to 42 5/8 after the company agreed to a buyout by Scotsman Industries. Scotsman, which agreed to pay $43 cash for each Kysor share, rose 2 1/8 to 26 1/8.
* Transocean Offshore slid 5 1/2 to 60 after warning of weak fourth-quarter earnings.
* New York Bagel Enterprises skidded 2 1/8 to 4 5/8 after the company said its quarterly earnings would be lower than expected.
* Wet Seal was up 1 3/8 to 21 1/2 and Urban Outfitters rose 1 1/8 to 13 1/4, after Barron’s reported that teen-oriented retailers are getting a boost from young women who are trading in the grunge look for dressier wardrobes.
* CAI Wireless Systems rose 1 13/32 to 3 1/16 after it said it plans to develop two-way wireless systems with ADC Telecommunications, which fell 7/8 to 35.
* Gillette fell 1 1/8 to 81 3/8 after it said fourth-quarter earnings rose more than expected but that foreign currency exchange losses rose, and its purchase of Duracell International won’t add to earnings as soon as expected.
Overseas, Tokyo’s Nikkei stock average fell 1.3%, Frankfurt’s DAX index rose 0.9% and London’s FTSE-100 fell 0.4%.
