New Inflation Fears Roil Stocks
The nation’s central banker rained on Wall Street’s parade again Wednesday by reviving inflation fears, sending the Dow Jones industrial average to its worst daily point loss in nearly a month.
The average tumbled 83.25 points to 8,095.06 after Alan Greenspan, chairman of the Federal Reserve Board, warned that inflation might soon be pushed higher by rising wages and prices. The blue-chip measure finished above its worst levels of the day, however. It was down more than 120 points earlier in the session.
Many analysts said Greenspan’s comments contained no new information, and in fact many private economists already have been fretting about the prospect of higher inflation and its potential for hurting stock and bond prices.
But because prices have rallied sharply in recent weeks, Greenspan’s remarks to the House Budget Committee were enough to prompt many investors to take their profits.
“He didn’t say one thing that was new,” said Peter Canelo, investment strategist at Morgan Stanley, Dean Witter, Discover. “I perceive this to be a purely technical sell-off in a market that was looking for an excuse to take profits.”
Investor perceptions also helped U.S. bonds post their biggest losses in two months. As bond prices fell, the yield on the 30-year Treasury rose to 6.37% from late Tuesday’s 6.23%, which was its lowest finish since February 1996.
Greenspan’s comments may have helped to bolster demand at the Treasury’s auction of $8 billion of inflation-linked notes, which were sold at lower-than-expected yields.
The notes were sold at a yield of 3.60%, below the 3.653% predicted by some traders. The sale was a reopening of the government’s five-year issue of Treasury Inflation Protection Securities, or TIPS, first sold in July.
Demand for the securities was better than at the inaugural auction of the five-year securities, based on the ratio of bids received to securities issued. There were $3,560 of bids for every $1,000 of securities sold.
Despite the sound and fury early in the day, the Nasdaq market edged to its fifth straight closing high, benefiting from strength in some bellwether technology issues.
But most broad-market measures pulled back sharply after Greenspan’s comments.
Declining issues outnumbered advancers by a nearly 2-1 margin on the New York Stock Exchange, where trading was heavy.
The Standard & Poor’s 500-stock index, which had closed at record highs for four straight sessions after enduring a two-month slump, fell 9.28 points to 973.84.
The NYSE composite index fell 4.64 points to 509.57, ending a five-session streak of record highs.
The Russell 2,000 index of smaller stocks rebounded into the close but finished with a tiny loss, down 0.12 point at 463.66. The small-company-dominated American Stock Exchange composite index fell 3.60 to 718.30. Both measures had closed at record highs for seven straight sessions.
The market’s reaction Wednesday was reminiscent of what happened Dec. 6, when stocks fell sharply after Greenspan had chided investors for their “irrational exuberance” in bidding stock prices so high.
“Shocks like Mr. Greenspan’s speech will happen,” said Michael Weiner, director of research at Banc One Investment Advisors. “We still feel it pays to be vigilant about inflation, but there really isn’t any evidence that producers can pass on price increases.”
Among Wednesday’s highlights:
* Nasdaq got a boost from Microsoft, up $2.50 to $139.
Gateway 2000, meanwhile, jumped $4.19 to $34 and was the most-active NYSE issue on news that Prudential Securities had upgraded the computer maker and called it a likely takeover target. Gateway 2000 “is clearly not for sale,” nor is it in talks to be acquired, company spokeswoman Megan Robertson said.
* Despite the strength among big-name tech shares, the Dow was weighed down by IBM, off $1.56 to $105.25, and Hewlett-Packard, down 50 cents to $69.50.
Financial services shares, which have rallied recently as interest-rate trends grew increasingly conducive to borrowing, were also among the Dow’s weakest components: J.P. Morgan fell $1 to $119.38, and American Express fell $1.50 to $84.50.
* Interest-rate jitters also sent utilities lower. Columbia Gas System fell $2.50 to $73.50, Enron fell 75 cents to $38.81, and Consolidated Edison Co. of New York fell 81 cents to $33.38.
* Food Technology Service rose $2.53 to $9.91 after U.S. Agriculture Secretary Dan Glickman said the Food and Drug Administration is likely to approve irradiation treatment for beef in a few weeks.
Overseas, Tokyo’s Nikkei-225 stock average rose 0.6%, Frankfurt’s DAX index rose 0.9% and London’s FTSE-100 fell 0.8%.
Market Roundup, D8
