Dow Falls as Yields Rise on Fed Worries
A Federal Reserve Board official put a fast end to the stock market’s attempt at a rally Thursday, as the specter of tighter credit was raised once again.
The market closed mixed after an early jump, with the Dow Jones industrials losing 20.47 points to 6,792.25 despite an 11 1/4-point surge, to 153 5/8, in IBM--a rise equivalent to 36 Dow points.
Stocks weakened as bond yields rose on the heels of comments by Fed Gov. Laurence Meyer. In a speech in New York, Meyer said the U.S. economy is speeding along at an “unsustainable” pace--a strong hint that the central bank is poised to raise interest rates again to slow growth.
That helped send the yield on the bellwether 30-year Treasury bond to 7.13% at the close Thursday, up from 7.08% Wednesday and the highest since April 14. Shorter-term yields also rose.
With rates heading up, stocks quickly reversed an early surge that saw the Dow up 78 points.
“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.
Losers topped winners by 13 to 12 on the New York Stock Exchange, although winners had a slight edge on Nasdaq.
Most broad market indexes closed modestly lower. But the Nasdaq composite index added 0.96-point to 1,228.10. It had been as high as 1,242 before fading.
“What really hit the market was Meyer’s comments,” said Tom O’Connell, bond trader at First Chicago Capital Markets. “It’s got people thinking we’ll see another [rate] increase.”
Also, the Conference Board reported that help-wanted advertising remains at a high level nationwide. “Demand for labor remains strong and may even be gaining more vibrancy,” said Conference Board economist Ken Goldstein.
Less troubling to the market, but still a downer, were International Monetary Fund managing director Michel Camdessus’ comments that U.S. stock prices seem “rich.” The IMF, in its world economic outlook, said it saw the risk of a further big drop in U.S. share prices.
On the plus side, investors seemed to take to heart from IBM’s comments Wednesday that it feels good about its business prospects for the rest of 1997, after reporting higher-than-expected first-quarter earnings. IBM’s rally helped pull up many other tech shares.
With earnings-reporting season waning, however, many Wall Streeters are worried that the market will focus intently on interest-rate fears in May, ahead of the Fed’s May 20 meeting.
Economic reports due soon could exacerbate rate concerns, if they show too much strength. The government next week will release data on March new home sales, first-quarter employment costs, and March employment, among other things.
Among Thursday’s highlights:
* Tech stocks following the Dow higher included Hewlett-Packard, up 7/8 to 50 1/4; Sun Microsystems, up 1 to 28 1/8; Advanced Micro Devices, up 4 to 41 1/2; Computer Associates, up 4 3/8 to 48 1/2; and Oracle, up 1 3/4 to 39 1/2.
* Most airline stocks tumbled after surging in recent weeks. Delta reported higher-than-expected first-quarter earnings but still lost 5 to 93 1/8, after soaring has high as 101 1/8. UAL, parent of United, fell 4 1/2 to 76 and US Airways slumped 2 5/8 to 31 1/2.
* Other stocks reacting to earnings reports included Procter & Gamble, off 2 1/2 to 123; AlliedSignal, down 3 7/8 to 69 7/8; American Express, up 1 7/8 to 63 1/8; MCI Communications, down 1 3/8 to 37 3/8; and Manpower, up 1 3/8 to 39 7/8.
Among Southland issues, Mattel gained 1 1/4 to 26 1/4 on its earnings report. But Sunrise Medical slumped 1 to 10 1/4 after reporting earnings down 57%. It also warned of “continued pressure on profitability” until later this year because of restructuring efforts.
* Three key interest-rate-sensitive groups--utilities, banks and real estate investment trusts--all were broadly lower, indicating widespread fears of higher rates. (Investor Spotlight, D7.)
In foreign trading, Mexico’s Bolsa stock index slid 1.2% on some disappointing earnings reports. Late in the day Telmex reported lower net earnings.
Market Roundup, D5
