Indexes Recover From Lows, but Still Down
Rising interest rates kept pressure on the stock market Tuesday, although major indexes rebounded from their lows and key Internet stocks rallied.
The Dow Jones industrial average fell 52.55 points, or 0.5%, to 10,655.15, after being down as much as 159 points.
The Nasdaq composite gave up 28.87 points, or 1.2%, to 2,490.11, with a surge in certain Internet shares leading a recovery from a 76-point loss.
The Standard & Poor’s 500 index, off 1.3% at the close, hit 1,267.73 at midday--10.6% below its July 16 record high of 1,418.78. That technically qualifies as a “correction” in market parlance.
Analysts said the S&P;’s drop below the 10% threshold apparently triggered some computer-guided buying by institutional investors.
However, few stock watchers were willing to say the midday rebound marked the end of the downturn that began in mid-July.
For one thing, trading volume wasn’t especially heavy, with 836 million shares changing hands on the New York Stock Exchange.
For another, the bounce-back was quite narrow: Declining stocks still outnumbered gainers by 3 to 1 on the NYSE and by 2 to 1 on Nasdaq.
The bond market continued its losing ways, as yields edged up again. The benchmark 30-year Treasury bond yield rose from 6.23% on Monday to 6.25%, the highest since Oct. 28, 1997.
Investors demanded higher yields amid a continuing glut of new bonds.
The Treasury sold $15 billion of five-year notes in the first phase of its quarterly debt auction. The yield on the notes was 6.01%.
Another $12 billion of 10-year notes are to be sold today, plus $10 billion of 30-year bonds Thursday.
The current Wall Street slump eerily echoes the beginning of last summer’s slide, when stocks peaked in mid-July, then began a steep slide through August.
But Alfred E. Goldman, chief market strategist for brokerage A.G. Edwards, said the similarities are coincidental. A year ago, after the Russian bond default and the near-collapse of the giant hedge fund Long Term Capital Management, there were worries about a global recession, he noted.
This year, “the world economy is definitely on the mend.”
Yet it’s the better economy that also is hurting stocks by helping to drive bond yields higher.
The market also is vexed by worries that the Federal Reserve will raise short-term interest rates again to slow U.S. growth.
The debate on Wall Street no longer seems to be whether the Fed will hike its key short-term rate at its Aug. 24 meeting, but whether it will raise it by a quarter percentage point or a half from the current 5%.
“It’s like a bad opera where the fat lady won’t get off the stage,” said Larry Jones, market strategist for Kenwood Group, a Chicago money-management firm, referring to the wait on the Fed.
Jones expects stocks to continue drifting downward until there is a “clear signal” from the Fed that it is finished tightening credit. He added that such a signal might not come at the Aug. 24 meeting.
Indeed, Edward Riley, chief investment officer at BankBoston Corp., believes Fed Chairman Alan Greenspan may want to prolong the interest-rate anxiety precisely to keep from reigniting the stock market.
“I think he’s definitely getting what he wants,” Riley said of Greenspan. “He should be quietly pleased that he has deflated at least a portion of the speculation in the market, most notably in the Internet sector.”
But with the best-known Internet stocks down 50% or more from their April highs, industry analysts finally think there might be a few bargains.
An example is EBay, which attracted several “buy” recommendations from major Wall Street brokerages Tuesday, causing the stock to leap $9.63, or 12%, to $89.25, in trading in the Nasdaq stock market.
Other Net gainers included Yahoo, up $6.31 to $127.50; Inktomi, up $8.13 to $100.88; Amazon.com, up $5.50 to $91; and Homestore.com, up $1.44 to $21.44.
Among blue chips, the day’s winners included Wal-Mart, up $2.69 to $42.88; Procter & Gamble, up $2.31 to $93.75; and Exxon, up 81 cents to $81.19.
Market Roundup, C11
