Bond Yields Jump; Stocks Finish Mixed
The bond market had a tough time Monday digesting new reports showing U.S. economic vigor, but the stock market largely took it all in stride.
Long-term bond yields rose to their highest level since mid-December, with the 30-year Treasury yield surging to 6% from 5.92% on Friday, on the heels of economic data suggesting Asia’s woes have had little net effect on U.S. growth. (Story, D3)
But on Wall Street the Dow Jones industrials still edged up to yet another new high, adding 4.73 points to 8,550.45.
The broader market was mixed, however: Winners topped losers by 17 to 13 on the New York Stock Exchange, but losers had a 23-to-20 edge on Nasdaq.
The Nasdaq composite index fell 11.97 points, or 0.7%, to 1,758.54 from Friday’s record high, as profit-taking finally hit some big-name tech stocks.
The economic reports appeared to take the bond market by surprise, although yields have been edging higher in recent weeks after hitting 20-year lows in mid-January, when expectations were high that the U.S. economy would slow sharply in coming months.
“People have overestimated the impact of the Asian slowdown on the U.S. economy,” said Robert Auwaerter, who helps manage $10 billion of bonds at the Vanguard Group in Malvern, Pa.
“We’re back through 6% for the time being and we’re staying there” for now, said John Burgess, who helps manage some $70 billion at Bankers Trust Global Investment Management. “The economy doesn’t seem to be falling out of bed,” said Burgess.
Still, shorter-term yields didn’t rise much Monday. The one-year T-bill yield edged up to 5.42% from 5.4% on Friday.
To the stock market, the bad news of rising interest rates was offset by belief that corporate profits might be stronger than expected if the economy remains healthy, analysts said.
“It’s the overall strength of the U.S. economy that is central to profit-growth expectations” and stock prices are based on those expectations, said Joe Battipaglia, investment strategist at Gruntal & Co.
Another wave of takeover announcements on Monday also helped support the market.
Among Monday’s highlights:
* Tech stocks pulling Nasdaq lower, as profit-takers moved in, included Intel, down $2.06 to $87.63; Dell, down $4.25 to $135.63; Microsoft, down $1.44 to $83.31; and Ascend Communications, down $2.38 to $35.06.
Also, Teradyne tumbled $6.19 to $41 amid concern that orders for its semiconductor testing equipment will be lower than expected. Chipmaker VLSI Technology had on Friday warned that its earnings are being crimped by weaker Asian orders.
Other makers of semiconductor-related equipment also fell Monday. Applied Materials lost $1.38 to $35.44, Novellus Systems dropped $3 to $44.94 and KLA-Tencor slid $3.16 to $43.
* Among Dow stocks, IBM dropped $2.50 to $101.94 and Hewlett-Packard fell $1.75 to $62.25.
Also losing ground were Disney, down $2.56 to $109.38; and Procter & Gamble, down $2.38 to $82.50.
* On the plus side, J.P. Morgan continued to advance, rising $4.06 to $123.56. The company recently announced plans to restructure certain operations.
* Golf stocks were weak after Callaway Golf warned that bad weather and weaker Asian business will hurt its earnings from golf-club sales in the near term.
Callaway sank $3.56 to $28.75. Among other golf-equipment makers, Coastcast fell $1.38 to $19.38 and Aldila was off 16 cents to $4.53.
* Oilfield services stocks continued to rebound, with Western Atlas up $4.06 to $80 and Halliburton up $1.31 to $47.75.
* Del Webb eased 69 cents to $31.31 after the developer of retirement communities said talks on selling the company had ended.
In foreign trading most European and Latin American stock markets scored more gains. Also, Tokyo shares hit their highest level since October on optimism about more government-sponsored stimulus for the Japanese economy.
