Inflation Fears Clip Stocks; Yields Climb
U.S. stocks fell Thursday as economic reports ignited concern about inflation, drove up interest rates and gave investors little incentive to buy stocks.
The dollar was mixed.
Banks such as NationsBank and Banc One were among the biggest losers as rising bond yields cut the value of their bond holdings and were seen dampening demand for loans.
“Equities remain extremely sensitive to the bond market,” said Hank Herrmann, chief investment officer at Waddell & Reed in Kansas City, Kan., which has $27 billion in assets.
He said stocks won’t move higher unless rates fall or corporate profits increase, which won’t be known until third-quarter earnings are reported starting next month.
The Dow Jones industrial average dropped 58.70 points, or 0.7%, to 7,848.01. The Standard & Poor’s 500 index dropped 6.57 points, or 0.7%, to 937.91, and the Nasdaq composite index fell 8.52 points, or 0.5%, to 1,678.89.
NationsBank dropped $1.50 to $62, and Banc One fell $1 to $53.56.
The yield on the benchmark 30-year Treasury bond rose to 6.40% from 6.31% on Wednesday, its worst showing in a month, on economic reports that orders for long-lasting goods such as aircraft and electronic equipment climbed more than expected.
A survey of weekly jobless claims showed a surprising drop, also suggesting the economy is expanding at a brisk pace.
High bond yields also hurt consumer goods companies such as Procter & Gamble and Merck, which are seen as alternative investments to bonds.
As bonds’ yields rise, their prices drop and they become more attractive.
P&G; fell 50 cents to $68.44; Merck dropped $2.13 to $99.13.
Declining stocks outnumbered gainers by 1,594 to 1,278. A warning of slower sales took a chunk out of Cognos, a maker of database management software. Ottawa-based Cognos dropped $10.69 to $22.06.
Weak profits and more muted outlooks from companies such as Gucci Group, the Italian fashion shop, and health insurer Aetna have taken their toll on broader market averages.
Gucci fell $1.06 to $46.31 after falling $10.88 on Wednesday.
Aetna dropped $2.50 to $90.13, its fifth straight decline.
Intel fell $2.50 to $93.13 amid a federal probe into its business practices.
3Com dropped $2.31 to $50.25 after Schroder & Co. after analyst Gina Sockolow cut her earnings estimate for the current quarter, the fiscal year and next fiscal year. She maintained her “significantly outperform” rating.
The dollar slipped against the yen after U.S. Trade Representative Charlene Barshefsky said she was concerned that Japan was impeding efforts to reduce the large trade deficit between the two nations.
Overseas, London’s FTSE-100 closed at 5,065.5, down 11.7 points, or 0.23%. Tokyo’s 225-share Nikkei average closed at 18,341.96, down 78.12 points, or 0.42%. Hong Kong’s Hang Seng index closed 431.15 points, or 3.045%, higher at 14,636.59.
