Dow, Broad Market Give Up Gains on Interest Rate Fears
The continuing threat of higher interest rates demolished a rally on Wall Street on Monday, sending stocks lower even after a new report suggested the economy might not be overheating after all.
The Dow Jones industrial average closed 9.19 points lower at 10,645.96 after rising as much as 136 points earlier in the session.
Broader stock indicators also gave up early gains and finished lower. The Nasdaq composite index fell 14.86 points to close at 2,623.63.
Stocks initially rebounded from last week’s steep losses after the National Assn. of Purchasing Management said the U.S. manufacturing sector grew in July for the sixth consecutive month but not as strongly as most analysts expected.
Treasury bond yields opened sharply higher, then fell as the session wore on. The 30-year T-bond started the day at 6.17% but ended at 6.12%--though that was still up from 6.10% on Friday.
Stocks rallied early with bonds, as some investors bet that the manufacturing report will lessen worries about another interest rate hike by the Federal Reserve.
But there was little conviction behind Monday’s early gains. And by midafternoon, the Dow also began slipping, turning lower in the final hour of trading.
Losers topped winners by 17 to 12 on the Big Board, though volume was anemic.
On a dismal day for most stocks, bullish analyst Abby Joseph Cohen provided a note of optimism. Cohen, chief investment strategist at Goldman Sachs & Co., told clients she does not foresee a bear market and that share prices will continue to move higher along with strong corporate profits.
Previous bear markets were generally preceded by overvaluation and “catalyzed by deterioration in economic performance, such as a significant rise in inflation or weakness in corporate results,” Cohen wrote in a report to clients. “We don’t believe that either condition is in place.”
Still, Cohen--one of Wall Street’s most optimistic and accurate strategists--said the Standard & Poor’s 500 index has reached “fair value territory, suggesting that future price gains likely occur in a more moderate fashion.”
Indeed, Cohen’s current year-end target for the S&P; 500 is 1,325--slightly below Monday’s close of 1,328.
In currency trading, the dollar was little changed against the yen and euro.
In commodity markets, grain prices soared on worries about dry Midwest weather.
Among Monday’s highlights:
* Key Internet stocks led the decline, with America Online off $4.25 to $92.88, EBay down $6.44 to $91.25 and Amazon.com down $6.06 to $94.
Other losers included The-Street.com, down $2.25 to a new low of $25; Earthlink Network, down $3.44 to $44.88; and TicketMaster Online, down $3.31 to $29.38.
* Many semiconductor stocks rallied. Intel rose $2.31 to $71.31 after the world’s largest maker of computer chips unveiled faster Pentium III and Celeron processors, boosting optimism about demand.
Motorola gained $1.63 to $92.88 and Vitesse Semiconductor surged $1.31 to $65.19.
* Emulex fell $4.63 to $108. Late in the day it announced a 2-for1 stock split.
* Financial stocks followed the broader market, rising before turning mixed late in the day. Chase Manhattan rose $1.19 to $78.25, but American Express, a Dow component, fell $1.69 to $130.06, and Charles Schwab lost $1.63 to $42.4.
* Investors seeking bargains boosted DaimlerChrysler $2.63 to $74.75.
The auto maker’s shares slid last week after the company reported flat operating earnings.
Investors also snapped up some other industrial names, including Dow Chemical, up $2.31 to $126.31; PPG Industries, up $1.50 to $61.13; and Weyerhaeuser, up $2.31 to $67.
* Sears rose $1.06 to $41.56 following reports that the company will cut 10% of the work force at its headquarters.
* New stock issues priced late Monday included Internet-based insurance service Quotesmith.com, at $11 each, and flower-delivery firm 1-800-Flowers, at $21 each.
The former will trade under the symbol QUOT and the latter as FLWS, both on Nasdaq, starting today.
Overseas markets were mixed. Japan’s Nikkei stock average fell 0.2%, but most European markets thrived on the early Wall Street rally.
Market Roundup, C12
