Dow Drops as Yields Rise; Techs Strong
Profit-taking hit blue-chip stocks Wednesday for the second time in three sessions, as bond yields rose amid some strong economic data.
But the tech-stock sector was buoyed by Microsoft’s bullish first-quarter profit forecast.
The Dow Jones industrial average fell 31.64 points to 8,872.80, recovering from a decline of more than 100 points in late afternoon.
Losers topped winners by 15 to 14 on the New York Stock Exchange and by 22 to 20 on Nasdaq. But the Nasdaq composite gained 12.07 points to a record 1,824.51, boosted by Microsoft. The Russell 2,000 index of smaller stocks also hit a record, up 0.88 point to 477.14.
The Dow made a run for the 9,000 mark early in the day, but the market was undercut at midday as bond yields rose.
Bonds were hurt by a weak auction of new five-year Treasury notes and by a general rise in yields after the National Assn. of Realtors reported that home sales soared 8.7% to a new record last month.
The news suggested the economy remains surprisingly strong, which could eventually fan inflation.
The yield on the 30-year T-bond rose to 5.94% from 5.88% Tuesday. The yield had been stuck in a narrow range since March 12.
The new five-year T-notes were sold at an average yield of 5.62%, higher than expected.
Bonds also were pressured by a sharp decline in the dollar against the Japanese yen, on concerns that Japan might spend more than expected to boost its ailing economy. The dollar sank to 128.73 yen in New York from 130.28 on Tuesday.
A weaker dollar could encourage foreign investors to dump their Treasury holdings.
Meanwhile, oil prices resumed their rebound, getting a boost from OPEC’s decision to convene an emergency meeting Monday in Vienna to ratify last weekend’s agreement to cut production. Near-term oil futures in New York rose 56 cents to $16.48 a barrel. The price is up 25% over the last week, after diving to nine-year lows.
All things considered, the stock market held up well on Wednesday, analysts said. But with the Dow up 12.2% so far this year, Wall Street is worried that the right combination of bad news could trigger more severe profit-taking.
Among Wednesday’s highlights:
* Drug stocks weakened after after Salomon Smith Barney analyst Christina Heuer downgraded Eli Lilly to “outperform” from “buy,” citing concerns that earnings growth could slow.
Lilly fell $1.25 to $61.25, Merck fell $1.88 to $130, Warner Lambert lost $2.06 to $166.44 and Abbott Labs dropped $2.19 to $74.56.
* Bank stocks weakened as bond yields rose. NationsBank lost $1.19 to $73.25 and BankAmerica was off $1.81 to $83.88.
* Hasbro sank $3.31 to $35.06 and Mattel dropped $2.56 to $40.88. Both toy companies on Tuesday warned of weaker sales in the near term as Toys R Us adjusts inventories.
* Microsoft rose $3.88 to a record $88.81 after saying that first-quarter results will beat analysts’ estimates. Other tech winners included IBM, up $2.50 to $106; Texas Instruments, up $2.25 to $55.56; and Yahoo, up $1.44 to $88.25.
* Apria Healthcare Group tumbled $2.31 to $8.88, or 21%, after the beleaguered home health-care company disclosed that a major cash infusion from a New York investment house is in jeopardy. The company said Tuesday that it was suing Joseph Littlejohn & Levy, claiming the investment house and its partner were refusing to go through with a $172-million investment in the Costa Mesa firm without major revisions in their deal.
In foreign trading, Japan’s Nikkei-225 stock index rose 0.3% to 16,658 after the country’s ruling party said it wanted to immediately push government-run funds into the market to boost the Nikkei to 18,000 by Tuesday, the end of Japanese banks’ fiscal year. At midday today the Nikkei was up 351 points, or 2.1%, to 17,009.
