Stocks Mixed; Reports Send Yields Higher
Stocks sputtered to a mixed finish Monday on the final day of the year’s second quarter, with the bond market sliding on hints of inflationary pressure coming a day before a key Federal Reserve Board meeting.
The Dow Jones industrial average lost 14.93 points to close at 7,672.79. But technology shares and smaller-company issues provided some leadership, with the Nasdaq composite index ending 3.92 points higher at 1,442.07.
Overall, advancing issues outnumbered decliners by a 7-6 margin on the New York Stock Exchange in heavy trading.
But the Standard & Poor’s 500-stock list fell 2.16 points to 885.14, and the NYSE composite index was off 0.86 point at 462.44.
Stocks were pressured all day by a weak bond market, where interest rates rose amid signs that economic growth may be accelerating to a more inflationary pace after slowing during the second quarter.
“The data obviously made people wonder if the economy is picking up steam again, and that got the whole question of interest rates surfacing again,” said Peter Cardillo, director of research at Westfalia Investments.
As the benchmark 30-year Treasury bond fell, its yield was pushed up to 6.78% from 6.73% on Friday. But most observers remained confident that Fed policymakers, who meet today and Wednesday, won’t see a need to cool off the economy with a boost in the central bank’s key lending rates.
Setting off bonds was a Commerce Department report that sales of new homes rebounded a surprising 7.1% in May after slumping 8.1% in April. A Midwest trade group also reported a sharp increase in factory activity during June.
However, another Commerce report showed consumer spending rose a modest 0.3% in May, bolstering arguments that the economic pace has eased enough to keep inflation in check without higher Fed rates.
While few on Wall Street see another market crash on the horizon, many caution that some backtracking is inevitable, especially if the bond market worries over the strength of the economy and inflationary pressures rise.
“A 10% pullback at this point would be my guess,” said Jack Shaughnessy, director of research at Advest. “We’ve had this lovely lull in the economy, and that’s producing some strength in the market that’s probably unsustainable.”
Among Monday’s highlights:
* The Dow’s weakest issue was Coca-Cola, down 3 to 68. Financial issues, which enjoy stronger profits when interest rates don’t rise, also figured prominently among the Dow’s decliners: J.P. Morgan fell 2 3/8 to 104 3/8 and American Express fell 1 3/16 to 74 1/2.
Other bank issues also flagged. First Chicago NBD slid 2 1/4 to 60 1/2, First Union slipped 2 3/8 to 92 1/2, SunTrust Banks fell 1 1/4 to 55 1/16 and Banc One fell 1 9/16 to 48 7/16.
NationsBank fell 11/16 to 64 9/16 three days after the fourth-largest U.S. bank confirmed it would acquire privately held Montgomery Securities for $1.2 billion.
* Lagging bonds also affected insurance issues--big buyers of fixed-income securities with the money they take in from premiums. American International Group slid 11/16 to 149 3/8, Marsh & McLennan dropped 1 3/4 to 71 3/8, Cigna fell 1 7/8 to 177 3/8 and General Re dropped 3 1/16 to 182.
* A number of tech issues rose. Laser equipment maker Coherent led the increase, gaining 3 7/16 to 44 1/2; Dow component Hewlett-Packard rose 1 7/16 to 56; chip maker Linear Technology added 1 1/2 to 51 3/4; and disk drive parts maker Seagate Technology advanced 1 5/16 to 35 1/4.
Tech companies that declined included Applied Materials, down 1 15/16 to 70 13/16.
In currency trading in New York, the dollar rose to 1.7465 German marks, its highest level since February 1994. It ended the day at 1.7455 marks, up from 1.7395 on Friday, buoyed by concerns about European monetary union and robust U.S. economic data. The dollar also rose to 114.68 Japanese yen from 114.55 on Friday.
Overseas, Tokyo’s Nikkei stock average rose 0.4%, Frankfurt’s DAX index fell 0.3%, and London’s FTSE-100 fell 0.8%.
Market Roundup, D13
