Stocks Down on Expectation of Fed Interest Rate Increase
Stocks continued their slide on Wall Street and abroad Monday, amid growing fears of higher interest rates.
The Nasdaq composite index sank 2.7% to 2,619.19, bringing its decline from its record high on July 16 to 8.5%.
The Dow industrials lost 47.80 points, or 0.4%, to 10,863.16.
Trading volume was light, at just 616 million shares on the New York Stock Exchange. But losers swamped winners by 2 to 1 on the NYSE and on Nasdaq.
Some investors have begun to believe that the Federal Reserve will raise interest rates as early as next month in an effort to hold off inflation.
Fed Chairman Alan Greenspan, who raised that possibility in congressional testimony Thursday, will address a Senate panel Wednesday, and analysts said it’s unlikely that stocks will muster much strength before then.
John H. Shaughnessy, chief investment strategist at Advest, said Greenspan appears to be laying a foundation for another modest rate increase, following the quarter-point increase imposed last month.
Later this week, the government will release the latest statistics on employment costs and on the gross domestic product, which could provide a clearer indication of whether inflation has encroached on the economy.
“Aside from post-earnings blues, it really seems to be anticipation of the ECI [employment cost index] that is holding the market down,” said Tom Galvin, chief equity strategist at Donaldson, Lufkin & Jenrette Securities.
In the bond market, yields continued to edge up, but modestly. The 30-year T-bond yield ended at 6.03%, up from 6.01% on Friday.
Asian stock markets also fell again Monday, as did European stocks. The German market tumbled 2% as the strengthening euro hurt German export stocks.
The euro neared $1.07, continuing to advance on optimism about Europe’s economy. The dollar was up modestly against the yen, however.
Also, German consumer inflation rose at its fastest pace in two years in July, and factories saw the prices they pay increase for the second month out of the last three in June, boosting speculation that the European Central Bank may need to raise interest rates by next year.
ECB chief economist Otmar Issing said the bank is becoming “increasingly vigilant” about inflation in the 11-nation euro zone.
Among Monday’s highlights:
* Internet stocks were hit hard. America Online lost ground as several top executives, including Chairman and Chief Executive Steve Case, sold 4 million shares.
AOL, which has begun battling several rivals over instant-messaging technology, fell $7.81 to $100.13 in heavy trading.
Yahoo fell $11.44 to $134.31 and Amazon.com sank $8.63 to $105.94.
* Among other tech issues, Microsoft fell $2.63 to $87.63 and Hewlett Packard dropped $2.06 to $105.69.
* American Express got a modest boost from its second-quarter earnings report. Shares rose 94 cents to $136.50.
* Revlon plunged $4.75 to $21.50 after saying it is in talks to sell all or part of the company.
* Brokerage TD Waterhouse slumped $2.81 to $18.25 after rival E-Trade hired away the company’s president. E-Trade fell $1.75 to $30.25.
Market Roundup, C12
