Stocks, Bonds Drop on Eve of Greenspan II
Stocks and bonds fell Tuesday as investors succumbed to a last-minute bout of nerves ahead of the second phase of Federal Reserve Board Chairman Alan Greenspan’s congressional testimony on the economy.
The Dow Jones industrial average closed down 66.20 points at 6,852.72, with nearly all the fall coming in the last hour of trading.
Broader stock measures ended mixed, with the technology-rich Nasdaq market managing to hold a modest gain.
“The stock market looked like it was just searching for direction,” said Peggy Farley, chief executive at Amas Securities Inc. “It didn’t have anything to make it go up and it had Greenspan to make it go down.”
Bonds provided some early support for stocks, but then retreated after another surprisingly strong economic report that fueled worries the Fed may indeed raise interest rates to contain inflation. As bond prices fell, the yield on the 30-year Treasury bond rose from late Monday’s 6.83% to 6.86%, the highest finish since late January.
Bonds gave up their early gains after the Commerce Department reported that January’s unseasonably warm weather in the Northeast and South helped push sales of new homes to a nearly 11-year high. Home sales are closely monitored because of their broad impact on numerous industries that make building supplies. And Greenspan, who today will complete his semiannual economic report to Congress, put financial markets in a state of high alert last week with blunt warnings on stock prices and interest rates during the first phase of his testimony.
Many Wall Street analysts viewed Greenspan’s comments as an attempt to talk the market lower, and blue-chip stocks have declined with only a brief interruption since his appearance.
But during an unrelated appearance on Tuesday before the House Budget Committee, the central bank chief denied his comments were aimed at affecting the market.
“That’s not what I was intending to do,” he told the committee, later arguing he was incapable of affecting the fundamental course of the market.
“These are very thick, elaborate, international markets which are driven by decisions of millions of people,” Greenspan said. “Nobody can affect them in a fundamental way.”
Analysts remained unconvinced, however, noting Greenspan said he was still ready to raise interest rates in a bid to head off inflation. Fed policymakers are to next meet on the rate issue March 25.
“There’s still some concern about what he plans to do,” said Philip Orlando, chief investment officer at Value Line Asset Management. “He set the table last week for some preemptive action on interest rates.”
Advancing issues outnumbered decliners by a 5-to-4 margin on the New York Stock Exchange in heavy trading, but the Standard & Poor’s 500-stock list fell 4.36 points to 790.95, and the NYSE composite index fell 1.66 to 415.68.
The Nasdaq composite rose 6.19 points to 1,317.37, boosted by computer-industry bellwethers.
Among Tuesday’s highlights:
* Making gains were a number of technology leaders such as Cisco Systems, up 1 1/2 to 55 3/4; Sun Microsystems, up 1/2 to 30 5/8; Intel, up 1/2 at 146 3/8; and U.S. Robotics, up 2 to 57 3/8.
* Drug issues were among the day’s worst-hit groups, with Merck leading the Dow’s decline, falling 2 3/4 to 91 1/4.
Other big Dow decliners included DuPont, which gave back much of Monday’s 4 1/8-point advance, falling 2 3/4 to 108 5/8.
* Despite the inflationary implications, rising crude oil prices helped cushion the Dow, lifting Texaco by 3 to 101 3/4, and Exxon by 3/4 to 100.
* Brokerage upgrades boosted Westinghouse Electric, up 1 1/4 to 19, and McDonald’s, up 3/4 to 44 1/8. AT&T;, down 7/8 at 36, fell for a second day amid worries about the telecom giant’s earnings.
