Dow Falls as Yields Jump on Data Jitters
Blue-chip stocks fell Thursday, reversing an early rally on strong earnings at IBM, as long-term bond yield interest rates jumped when a Federal Reserve Board governor said the economy was growing too fast.
Even with the equivalent of a 36 1/2-point booster shot from IBM, the Dow Jones industrial average fell 20.47 points to 6,792.25.
Early in the session, it seemed the Dow average had rediscovered Tuesday’s momentum, which produced a 173-point surge. But the Dow quickly surrendered an opening 78-point gain as interest rates rose in the bond market amid worries that next week’s economic reports will intensify the inflation fears that have gripped investors since mid-March.
Federal Reserve Board Gov. Laurence Meyer gave traders further reason for concern when he said the economy is speeding along at an unsustainable pace. His remarks fueled speculation the Fed will boost lending rates again next month.
“What really hit the market was Meyer’s comments,” said Tom O’Connell, who trades two-year notes for First Chicago Capital Markets Inc. “It’s got people thinking we’ll see another increase.”
As the benchmark 30-year Treasury bond fell, its yield rose to 7.13% from 7.08% Wednesday.
“It looked like we were back off to the races. But when bonds are under pressure, it’s tough for stocks to rally,” said Ronald J. Hill, investment strategist at Brown Bros. Harriman & Co.
Broader stock indicators ended mixed, with technology shares and smaller-company issues outperforming the blue-chip sector.
Although investors did react enthusiastically to IBM’s results, there was little applause again for the latest in a series of strong earnings reports from other members of the Dow 30.
Procter & Gamble beat forecasts by a small margin, and AlliedSignal met expectations, but both were among the Dow’s weakest issues, along with United Technologies, DuPont and Disney--all three of which reported better-than-expected results Wednesday.
There was little reaction to Thursday’s news that first-time claims for jobless benefits dropped by 8,000. The decline wiped out an 8,000 increase a week earlier and restored the total of new claims to 324,000.
Many analysts had expected a smaller dip but still say a claims level in the lower 300,000 range reflects a strong job market that could force companies to raise wages--and prices--as they compete for workers.
Next week’s data includes key readings on wage levels and other employment costs that have a big impact on inflation.
Declining issues outnumbered advancers by a 10-9 margin on the New York Stock Exchange in moderate trading. The Standard & Poor’s 500-stock list fell 2.46 points to 771.18, and the NYSE’s composite index fell 1.09 point to 403.62.
The Nasdaq composite index rose just 0.96 point to 1,228.10 after retreating from an early 15-point gain.
Among Thursday’s highlights:
* Of Dow components, IBM was the spectacular gainer, adding 11 1/4 to 153 5/8.
Others fell, including AlliedSignal, down 3 7/8 to 69 7/8; DuPont, off 3 3/4 to 102 1/4; P&G;, down 2 1/2 to 123; United Technologies, down 2 1/2 to 75 1/8; and Disney, off 7/8 to 78 1/4. But American Express rose 1 7/8 to 63 1/8 on strong quarterly results.
* IBM’s advance benefited other tech issues. Oracle climbed 1 3/4 to 39 1/2 and Compaq Computer gained 2 5/8 to 80 1/8.
But Netscape fell 7/8 to 26 5/8, after reporting that quarterly results more than doubled, exceeding expectations amid continued demand for intranet software.
MCI Communications fell 1 3/8 to 37 3/8 after reporting flat results.
* The Dow Jones transportation average declined 1.28%, even after Delta Air Lines reported higher-than-expected earnings. Delta lost 5 to 93 1/8; UAL fell 4 1/2 to 76; and US Airways Group lost 2 5/8 to 31 1/2.
* Donaldson, Lufkin & Jenrette soared 2 7/8 to 43 1/2 amid speculation the firm may be a takeover target.
Overseas, Tokyo’s Nikkei stock average fell 0.2%, while both Frankfurt’s DAX index and London’s FTSE-100 ended slightly lower.
Market Roundup, D5
