Blue Chips Dip as Bond Yields Ease Slightly
U.S. stocks ended mixed Wednesday after Tuesday’s surge, as the bond market initially rallied further, then pulled back.
Meanwhile, the sell-off in battered Southeast Asian stock markets continued as the countries’ currencies tumbled again.
On Wall Street the Dow Jones industrials, which rocketed 175 points Tuesday on fresh reports of subdued inflation, eased 9.48 points to 7,886.44 on Wednesday after trading as high as 7,931.
Even so, winners edged losers on the New York Stock Exchange and on Nasdaq in continued active trading.
And the Russell 2,000 index of smaller stocks, which has climbed steadily all summer, hit yet another record high, adding 0.97 point to 446.15.
For blue chips, however, “It’s a consolidation day as the market digests [Tuesday’s] gains,” said Scott Bleier, chief market strategist for Prime Charter Ltd.
Stocks rallied across the board early in the day, as bond yields tumbled anew on reports that housing starts fell 4.8% in August and that the Federal Reserve Board’s latest “beige book” report on regional economic trends pointed to moderate growth and low inflation.
The bellwether 30-year Treasury bond yield, which plunged from 6.57% on Monday to 6.4% on Tuesday on news that August consumer inflation was virtually nil, fell to 6.36% early Wednesday.
But yields backed up later in the session, and the 30-year T-bond ended at 6.39%. Shorter-term yields inched up.
Bonds’ inability to strongly follow through on Tuesday’s rally may have disappointed some stock investors, triggering profit-taking in blue chips, analysts said.
Still, Wednesday’s economic data make it highly unlikely the Fed will tighten credit when it meets on Sept. 30, despite other recent signs of a stronger economy.
“The Fed is definitely out this month, probably for November and maybe even for the rest of this year,” said Morton Swinsky, analyst at Fuji Securities in New York.
For stocks, that may mean the greater focus will be on upcoming third-quarter earnings reports, analysts say. Optimism about smaller companies’ earnings relative to blue-chip multinationals’ earnings has been boosting the former stocks at the expense of the latter since early-August.
But long-term profit optimism isn’t restricted to small stocks: On Wednesday, Compaq Computer surged $4.38 to $73.75 after the company boosted its annual revenue goal to $50 billion from $40 billion by 2000, analysts said.
Among Wednesday’s highlights:
* Paper stocks surged after Georgia-Pacific said its earnings would be above expectations this quarter, and that it would spin off its timber assets. G-P jumped $4.06 to $98.63, Mead gained $2.56 to $73.63 and International Paper leaped $2.81 to $55.88
* Many financial stocks continued to rally. Merrill Lynch jumped $2.19 to $70.69, SunAmerica gained $1.06 to $37.94 and Santa Barbara Bancorp rose $1.13 to $48.38.
* Smaller stocks showing strength included Guitar Center, up $3.25 to $27; Jacobs Engineering, up 69 cents to $30.19; and Geoworks, up $2.38 to $16.50.
In currency trading, the dollar fell against the Japanese yen after Japan reported a 114% jump in trade surplus for August, but the dollar recouped much of its losses after Treasury Secretary Robert Rubin said U.S. policy toward the dollar “remains the same”--suggesting the Clinton administration won’t try to weaken the dollar to pressure Japan on trade.
In foreign trading, Southeast Asian stocks markets continued to fall with their beleaguered currencies. Indonesia’s key share index fell 1.5%, Malaysia’s dropped 1.9% and the Philippines’ index sank 1.7%. Tokyo’s market also weakened, with the Nikkei-225 dropping 1.6% to a five-month low.
