Leap in Bond Yields Sends Stocks Skidding
A late-day jump in long-term bond yields helped snuff out a rally in major stock indexes, and the broad market closed mixed Thursday.
The Dow industrials edged up just 1.59 points to 10,789.39 after being up as much as 113 points.
The Nasdaq composite, which had a 22-point gain at midday, closed down 15.49 points, or 0.6%, to 2,549.49.
The session disappointed traders who were hoping the battered equity market could build on Wednesday’s gains, when the Nasdaq index surged 3%.
“The whole issue for the stock market is that interest rates are rising,” said Bob Streed, a money manager with the Northern Trust Co., which oversees $240 billion. “All news is looking like bad news.”
The bond market had another tough day. Yields edged up on longer-term issues for much of the session. Then the yield on the most recently issued 30-year Treasury bond jumped to 6.27% in late trading, a new 22-month high and up from 6.21% on Wednesday.
The Treasury had sold new 30-year bonds earlier Thursday at a yield of 6.14%, which traders said was higher than expected.
Bond trading late in the day also may have been affected by power outages in Chicago that temporarily disrupted bond futures trading on exchanges there.
In the stock market, winners still edged losers by a narrow margin on Nasdaq, while losers had the edge on the New York Stock Exchange.
Both stocks and bonds will have to contend today with the government’s report on July wholesale price inflation. The report could help cement--or dampen--expectations that the Federal Reserve will raise short-term interest rates when policymakers meet on Aug. 24.
With a Fed hike still a threat, “as long as the bond market is behaving like a bear market, it will be tough for stocks to take off,” said Eugene G. Mintz, analyst at Brown Bros. Harriman & Co.
The 30-year T-bond yield has risen from 5.10% at the start of the year as the global economy has picked up steam and as the Fed has begun to tighten credit to keep inflation at bay.
In other trading, the dollar was mostly flat against the yen and the euro. Late in the day President Clinton repeated that U.S. policy is to back a “strong dollar.”
Among Thursday’s highlights:
* The Dow was hurt as Hewlett-Packard sank $6.31 to $103.06 and as IBM lost $2.19 to $121.13, after a Merrill Lynch report cast a downbeat outlook for personal computer makers.
Other major tech stocks also fell after rebounding on Wednesday. Cisco Systems lost $1.25 to $61.69, Applied Materials dived $5.13 to $72.63 and Micron Technology tumbled $5.44 to $63.13.
But Linux operating system purveyor Red Hat, which rocketed Wednesday from its $14 initial offering price, rose further, gaining $20.56 to $72.63.
* Internet shares were mostly higher, led by EBay, up $3.69 to $91.38; EToys, up $2.38 to $33.75; and Abovenet Communications, up $5.13 to $31.19.
Among Net new issues, Ixnet closed unchanged at $15, and NetScout rose $2.75 to $13.75.
* Brokerage stocks were sharply higher as rumors surfaced again that Merrill Lynch might seek a merger deal with a major bank. Merrill shares soared $4.38 to $71.38. Chase Manhattan, often mentioned as a buyer, fell $1.25 to $75.69.
Also gaining were Lehman Bros., up $2.19 to $53.19, and National Discount Brokers, up $3.19 to $31.94.
* Caterpillar rose $1.75 to $61 after Goldman Sachs added the machinery giant to its list of recommended stocks, citing the strengthening global economy.
* Major drug stocks were higher as bargain hunters jumped at the stocks, many of which are down sharply this year.
Warner-Lambert surged $3.38 to $64.75. Its 52-week high is $82. Johnson & Johnson rose $2.25 to $94.75, and Schering-Plough gained $1.38 to $49.31.
Market Roundup, C6
