Stocks Fall as Economic Reports Loom
Stocks closed broadly lower on Friday as investors braced for a series of key economic reports next week. Some downbeat corporate earnings news also rattled Wall Street.
The Dow Jones industrial average dropped 53.38 points to 6,738.87, trimming its net gain for the week to just 35.32 points--despite Tuesday’s spectacular 173-point surge.
Broader indexes also fell Friday and most lost ground for the week. The continuing sell-off in smaller stocks intensified on Friday, with the Russell 2,000 index of smaller issues slumping 2.67 points to 335.85--its lowest level since early September.
Losers swamped winners by 17 to 8 on the New York Stock Exchange and by 22 to 17 on Nasdaq in modest trading.
Even though the bond market was relatively calm Friday, many stock investors are afraid that next week’s barrage of data will show that the economy is accelerating--which would raise the likelihood of another interest-rate hike by the Federal Reserve Board.
“If you string together a few strong reports, investors will assume we will definitely have a Fed hike,” said Barbara Marcin, who oversees $620 million at Citibank Global Asset Management. “Everyone thinks interest rates could go up from here.”
Reports next week will include trends in March new-home sales, first-quarter employment costs and April employment.
Strength in those numbers could send bond yields sharply higher. The 30-year Treasury bond ended Friday at 7.13%, unchanged from Thursday but up from 7.05% a week ago.
The 1-year T-bill yield rose more dramatically this week, from 5.91% to 6.08%--the highest in two years. That rate is particularly sensitive to official Fed rate hikes, and so it appears to be anticipating another Fed increase when the central bank meets May 20.
Analysts say the great danger to bonds and stocks is that next week’s economic data will be so strong as to convince investors that the Fed will have to raise rates more than a quarter- or half-point to slow the economy’s pace.
Among Friday’s highlights:
* Interest-rate-sensitive groups led the stock market lower. The Dow utility stock index fell 1.26 points to 209.47, lowest since last summer. Bank and other financial services stocks also fell.
* Tech stocks pulled back after rallying for much of the week, as investors quickly sought to take profits. IBM dropped 2 7/8 to 150 3/4, Intel lost 2 1/4 to 143 7/8, Adobe Systems dropped 2 3/4 to 37 7/8 and Western Digital fell 2 7/8 to 55 1/8.
Telecommunications firm Ericcson sank 2 15/16 to 29 9/16 despite reporting earnings up 30%.
Also, Electronic Data Systems plummeted 9 1/2 to 32 1/2 after the computer services firm reported lower-than-expected first-quarter earnings amid surging labor costs. Rival Computer Sciences tumbled 4 3/4 to 60.
* Hertz, the world’s largest rental car company, surged 3 5/8 to 27 5/8 in its first day of trading on the NYSE. Parent Ford Motor sold 17% of the firm via an initial public offering.
* Telephone issues bucked the downward trend. Bell Atlantic and Nynex gained one day after winning U.S. clearance for their merger. Bell Atlantic rose 5 1/8 to 63 3/4 and Nynex advanced 3 3/4 to 48 1/8. Also rising were BellSouth, up 1 1/2 to 42 3/4; GTE, up 1 3/8 to 44 3/4; and Ameritech, up 2 to 58 5/8.
* Harnischfeger fell 1 to 45 3/8. After the market closed, it bid 19 a share in cash for Giddings & Lewis, which had closed at 13 5/8, unchanged.
Market Roundup, D4
