Dow Falls 92 as Yields Jump on Strong Data
Stocks closed broadly lower Thursday as bond yields continued to rise, tracking stronger-than-expected economic data.
The Dow Jones industrials sank 92.75 points, or 1.3%, to 6,927.38, after losing 47.33 points on Wednesday.
In the broad market, there were nearly twice as many losers as winners on the New York Stock Exchange, although volume wasn’t particularly heavy.
Meanwhile, oil prices sank to near six-month lows, and the dollar also tumbled.
Analysts said stocks’ main problem right now is that this year’s blue-chip rally has been so powerful--leaving many investors nervous and eager to take profits.
“People are questioning whether we’ve hit the wall for a while,” said Ned Riley, chief investment officer at Bank of Boston.
The trigger for selling Thursday was a jump in bond yields, as the bond market suffered its biggest price decline in six weeks on reports that suggested the U.S. economy may be more robust than thought.
The Labor Department reported that new claims for jobless benefits edged up by 1,000 last week, a much smaller advance than the 11,000 increase that many analysts had expected. It suggested that jobs are being created at a healthy pace, and it fanned inflation concerns in the bond market.
What’s more, the Federal Reserve Bank of Philadelphia said its regional economic index rose in February, as did its index of prices paid to manufacturers.
The yield on the bellwether 30-year Treasury bond leaped to 6.65% from 6.58% Wednesday. The yield was 6.53% a week ago.
“The market is very vulnerable to any news that isn’t favorable,” said Lauren Best, who manages $2 billion in bonds for Advisers Capital Management.
A pullback in the dollar also hurt bonds. The dollar registered its biggest one-day decline against the Japanese yen since September 1995, as Japanese stocks soared amid optimism that the Japanese government will buy depressed property held by banks.
The Nikkei-225 stock index in Tokyo rocketed 2.4% to 19,051.
The dollar, which has been soaring against the yen in recent months, closed at 122.55 yen in New York, down 1.91.
A weaker dollar could depress U.S. bonds if it encourages foreign investors to sell their U.S. bond holdings before they become devalued by currency changes.
With many U.S. stock investors itching to take profits, the action in other markets was enough Thursday to trigger widespread selling on Wall Street. The Standard & Poor’s 500 index dropped 1.2% to 802.80. The Nasdaq composite gave up 1.3% to 1,347.40.
The Dow was off as much as 120 points before rebounding in the final minutes.
Still, some analysts said the more likely path for the market in the near term is sideways.
“There’s a lot of information coming out, but there’s not a strong pattern that would be moving the market in either direction,” said Mary Farrell, investment strategist at PaineWebber Inc.
Among Thursday’s highlights:
* Tech stocks were off sharply. Intel lost 4 to 149 7/8 after Compaq chose a Cyrix microprocessor to run its new $999 personal computer. Cyrix zoomed 3 7/8 to 29 3/8.
Other tech losers included IBM, off 2 3/8 to 141 1/4, and Microsoft, down 2 1/4 to 95 1/4.
* Brokerage stocks, which are seen as a bellwether for the broader market, tumbled after recent strong gains. Merrill Lynch lost 3 5/8 to 98 3/8, Morgan Stanley fell 2 to 69 7/8 and PaineWebber dropped 2 to 34 7/8.
* Energy stocks were broadly lower as crude oil futures sank, in the wake of reports showing rising U.S. oil inventories.
* On the plus side, investors looking for “defensive” plays flocked to food stocks. ConAgra gained 1 to 54 1/4, General Mills jumped 1 to 67 5/8 and Campbell Soup rose 1/2 to 89.
In foreign trading, most Asian markets closed higher, as the death of China’s paramount leader, Deng Xiaoping, apparently was viewed as ending uncertainty.
