Interest Rate Worries Drive Down Stocks
Stocks, bond prices and the dollar fell Tuesday as investors played safe amid renewed jitters about a U.S. interest rate hike.
The Dow Jones industrial average ended down 45.09 points at 9,147.57, a day after jumping 46 points to a record high.
In the broad market, declining issues led advances 1,811 to 1,101 on moderate volume of 579 million shares on the New York Stock Exchange.
The Nasdaq index fell 13.95 points to 1,864.91.
The Standard & Poor’s 500 fell 6.57 points to 1,115.50, and the NYSE composite index fell 2.98 to 579.75, and the American Stock Exchange composite index fell 3.52 to 745.28.
The Russell 2,000 index of smaller companies fell 3.72 points to 481.74.
“We were up on a real moonshot for a while, and now we’re pulling back,” said Hildegard Zagorski, an analyst for Prudential Securities.
She said concerns about higher interest rates spreading from Europe to the United States caused investors to take a more cautious view.
Stocks were pressured throughout the session by a weak bond market, where the yield on the 30-year Treasury--a key determinant of borrowing costs for companies and consumers--rose back toward 6%.
The long bond’s price fell, raising the yield to 5.98% from 5.93% at Monday’s close. The yield and price move in opposite directions.
Adding fuel to the worries was a late-afternoon meeting at the White House between President Clinton and Federal Reserve Board Chairman Alan Greenspan. It was the first such meeting in more than a year. The January 1997 meeting was followed by an interest rate hike two months later.
A Fed spokesman told Reuters that the session had been requested by the White House.
Bonds also struggled after a top official at the International Monetary Fund asserted that the Fed won’t be able to put off an increase in the central bank’s interest rates for long.
The comments quickly reopened the inflation debate that unexpectedly flared up last week, but was seemingly resolved only days later by a series of encouraging economic reports.
“There is certainly a fear that there’s going to be an interest rate hike” at the Fed’s May 19 meeting, said Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum.
An unexpected rise in interest rates by Denmark led investors to become concerned that higher interest rates may spread throughout Europe and then to the United States, analysts said.
Investors were waiting for Friday’s key jobs numbers for April, looking for reassurance that the economy is not overheating.
Among Tuesday’s highlights:
* In a development that could bolster the struggling technology sector, Cisco Systems stepped forward after the close with a quarterly profit report that edged Wall Street forecasts. The networking bellwether’s shares had fallen $1.31 to $73.63 in advance of the report.
* Tuesday’s selling was very broad-based, with only one member of the Dow 30 losing at least 2 points: American Express fell $2 to $102.44.
* The rise in interest rates affected bank stocks. Citicorp fell $2.94 to $149.69, BankAmerica slid $1.94 to $84.56 and NationsBank fell $1 to $76. Rising borrowing costs dent demand for loans and could also damp enthusiasm for mergers.
* Oil companies declined as the price of crude slumped 48 cents a barrel to $15.47. Analysts are becoming more pessimistic that a new round of cuts in global supply will be agreed upon soon.
Amoco fell $1.06 to $44.50, Exxon dropped 75 cents $74 and Mobil slipped 25 cents to $81.06.
In currency trading, the dollar ended at 1.7685 German marks, below Monday’s 1.7793 close. It also slid to 131.44 Japanese yen from 133.00 yen as dealers worried that the Bank of Japan may try to prop its currency.
Overseas, London’s FTSE-100 closed down 0.40%. Tokyo had a market holiday for Children’s Day.
