Jobs Data Send Yields Soaring; Net Stocks Slide
Stocks ended broadly lower Friday as bond yields soared, keying off July employment data that may make another Federal Reserve interest rate increase all but inevitable.
Internet stocks, which had rebounded sharply Thursday after diving for three weeks, resumed their decline.
The Nasdaq composite index, heavy with Net stocks, slid 17.86 points, or 0.7%, to 2,547.97.
The index ended above its low for the day of 2,535, but for the week it posted a 3.4% loss, and is down 11% from its record high July 16.
The Dow Jones industrials lost 79.79 points Friday, or 0.7%, to end at 10,714.03. The Dow actually ended up for the week, but still is off 4.4% from its July 16 peak.
The bond market had a far worse day than stocks. Yields rocketed across the board after the government said employers added a more-than-expected 310,000 jobs to their payrolls in July and that average hourly earnings rose more than expected.
The yield on the 30-year Treasury bond soared to 6.18%--the highest since late 1997--from 6.04% on Thursday.
The yield on the 10-year T-note, a benchmark for mortgages, also ended at nearly a two-year high, crossing 6%.
Investors have grown increasingly worried that tight labor markets will force the Federal Reserve to raise short-term rates again as a preemptive strike against inflation. The Fed raised its key rate a quarter-point June 30, to 5%.
“This is the confirmation” that the Fed will boost rates at its Aug. 24 meeting, said Don Ross, chief investment officer at National City Investment Management in Cleveland, with $24 billion under management.
“You’re going to see new highs in [bond] yields” in the weeks ahead, he said. The 30-year T-bond could hit 6.38%, he said.
Corporate bond yields also surged Friday, with the KDP junk-bond index yield ending at 10.29%, up from 9.84% two weeks ago.
Meanwhile, “The stock market is trying really hard to fight reality right now--interest rates will probably be rising,” said Brian G. Belski, strategist at George K. Baum & Co. in Kansas City, Mo.
Although losers outnumbered winners by about 2 to 1 on the New York Stock Exchange on Friday, trading volume was under 700 million shares.
Analysts have been surprised that the market hasn’t faced heavier selling pressure.
“The market doesn’t seem to know whether it wants to go up or down,” David Dreman, head of Dreman Value Management, told Bloomberg News.
Indeed, even amid the latest downturn, some stock groups have shown surprising strength--including semiconductors, biotech, utilities, oil and consumer multinationals.
Among Friday’s highlights:
* Internet stocks falling again included EBay, down $9.63 to $83.25 after it faced another system outage Friday; Amazon.com, down $7.69 to $89.56; Inktomi, down $8.25 to $95.13; and Priceline.com, down $3.75 to $74.38.
* Semiconductor stocks rallied, led by Texas Instruments, up $2.88 to $142.50; Micron Technology, up $4.50 to $65.88; and Vitesse Semiconductor, up $1.88 to $66.25.
A report this week showed worldwide semiconductor sales in June rose 13.6% from June 1998.
* Online brokerages slumped on concern that higher interest rates and lower stock prices will prompt investors to trade less.
E-Trade Group fell $1.63 to $25.75 and Charles Schwab lost $1.56 to $40.19.
Other brokers also fell. Goldman Sachs slid $3 to $56.25, and Merrill Lynch dropped $2.50 to $63.88.
* Bank stocks also were hurt by higher rates. J.P. Morgan fell $2.56 to $122.94; Citigroup slid $1.50 to $42.50; and Bank of America lost $2.88 to $60.13.
* American Home Products plunged $6.06 to $44.88 after a jury ruled against it in a case of alleged damage from a diet drug.
* Many utility stocks were winners, as some investors searched for safe havens. American Electric Power added 19 cents to $36.25, and Edison International rose 31 cents to $26.19.
* Some energy stocks edged up as crude oil futures neared $21 a barrel. Unocal added 25 cents to $40 and Enron Oil & Gas rose $1.88 to $24.94.
Foreign markets were mixed. Japan’s market fell 1.6% and Taiwan shares fell 2%, but German shares rose 0.6%.
Market Roundup, C4
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
No Rate Relief
Treasury bond yields soared to their highest levels in nearly two years Friday on the latest economic data. The yield on the 10-year T-note, a benchmark for mortgages (quarterly closes and latest):
Friday: 6.04%
Source: Bloomberg News
