Stocks Finish Lower as Rate Fears Take Hold
Blue-chip shares managed a small gain, but most stocks fell Monday as another day of big merger news provided only a fleeting distraction from renewed concern about interest rates.
The Dow Jones industrial average closed at 9,091.52 for a 36.37-point gain. But early in the session the Dow was up nearly 135 points.
Broader stock indexes surrendered all of their gains as interest rates rose in a jittery bond market.
The Nasdaq composite index sank 16.30 points, or 0.9%, to 1,848.07.
Losers topped winners by 25 to 18 on Nasdaq and by 17 to 13 on the New York Stock Exchange, though volume remained relatively subdued.
Stocks opened higher amid news that Baby Bell SBC Communications, continuing an aggressive campaign of takeovers, would acquire Ameritech in a stock deal valued at $56 billion.
Several other big takeover deals were also announced, and DuPont helped boost the market with its decision to spin off its Conoco energy unit.
But rising bond yields “took the steam out of the equity markets,” said Henry Herrmann, chief investment officer at Waddell & Reed.
U.S. bonds suffered their biggest loss in two weeks, pushing the benchmark 30-year Treasury yield above 6%, as the Treasury and other borrowers prepare to sell about $33 billion of debt in coming days.
The 30-year T-bond closed at 6.03%, the highest since April 29, and up from 5.98% on Friday.
The Treasury will sell $10 billion of three-year notes today--its last scheduled sale of the securities--and $12 billion of 10-year notes Wednesday. Borrowers including Long Island Power Authority, Asia Development Bank and Owens-Illinois are gearing up to sell more than $10 billion of debt soon.
Treasury yields are rising “in anticipation” of the auctions, which may temporarily outpace demand, said Robert Alley, who manages $2.5 billion at Aim Advisors in Houston.
Bond traders also were focused on key economic reports due this week--the producer price index for April, to be released Wednesday, and the consumer price index, to be released Thursday--and on a Federal Reserve Board interest rate policy meeting scheduled for next Tuesday. Investors will be looking to the reports for reassurance that the Fed will have no reason to raise interest rates.
As for Wall Street, “people are nervous for the stock market at high valuations, and for the market to make big progress from here, you need a big rally in the bond market, but the opposite is occurring,” Herrmann said.
Among Monday’s highlights:
* The Dow was carried by two stocks: DuPont, up $5.44--or the equivalent of more than 20 Dow points--to $79.50 after the chemical maker announced plans to divest its Conoco energy unit, and GM, up $2.69 to $71.38 on optimism that the company might take new steps to boost shareholder value.
* In the takeover arena, Ameritech rose $2.13 to $46 on SBC’s bid, but SBC tumbled $3.56 to $ $38.81.
* In the oil services sector, Western Atlas rocketed $11.50 to $92.88 on news that Baker Hughes will acquire it for $5.2 billion. Shareholders of Western Atlas will receive 2.4 shares of newly issued Baker Hughes common stock for each Western Atlas common share under terms of the deal. Baker fell $2.31 to $38.81.
* Some biotech stocks tumbled on unrelated setbacks. Texas Biotechnology lost half its value, sliding $4.25 to $4.75 after the company said U.S. regulators rejected the company’s Novastan drug for treatment of a potentially deadly blood clot condition.
Incyte Pharmaceuticals slid $6.47 to 33.66 on concern that Perkin-Elmer’s plan to form a company with a top gene researcher to map human DNA faster than before will cut into Incyte’s business. Perkin-Elmer rose $4.25 to $72.75.
In late currency trading in New York, the dollar closed at 1.7763 marks, up from 1.7693 at Friday’s close and at 132.75 yen versus 132.83 on Friday.
Overseas, Tokyo’s Nikkei 225-stock average rose 1.5%, Frankfurt’s DAX index rose 1.6% and London’s FTSE-100 rose 1%.
