Blue Chips and Techs Slide on Rate Hike Fears
The fear of higher interest rates returned to Wall Street on Tuesday after a three-session hiatus, sending blue-chip stocks and bond prices sharply lower. Benchmark 30-year Treasury yields settled at 5.99% after touching the closely watched 6% mark.
The Dow Jones industrial average fell 143.74 points to close at 10,765.64, more than wiping out Monday’s gains.
Broader stock indicators also fell. The Standard & Poor’s 500 dropped 17.19 points to 1,317.33, and the technology-dominated Nasdaq composite index dropped 49.71 points to 2,474.50.
Major market averages rallied in recent days as new economic data suggested the nation’s unprecedented growth might be continuing without rising inflation. Analysts said many investors had abandoned their certainty that the Federal Reserve would raise interest rates to stifle inflation when its Open Market Committee meets June 29.
But Tuesday, William Poole, president of the Federal Reserve Bank of St. Louis, suggested that he believed inflation has returned. Bond prices tumbled following his remarks, pushing yields higher.
“The bond market can’t get out of its own way,” said Charles Pradilla, chief investment strategist at SG Cowen Securities, noting that at the 6% level, bonds are perceived as a favorable alternative to stocks.
Investors turned away from a range of stocks, though consumer products and chemical companies led the Dow industrials lower. Procter & Gamble fell $2.75 to close at $94.81 and DuPont dropped $3.31 to close at $69.50.
“The economically sensitive stocks are weaker,” noted Alfred E. Goldman, chief market strategist at A.G. Edwards & Sons in St. Louis. “They’re under a little profit-taking pressure after three up days.”
Major airline stocks fell after several carriers cut ticket prices by as much as 25% for off-peak summer travel. UAL, the parent of United Airlines, has already said it expects to miss second-quarter earnings forecasts, and the fare sale struck investors as another potential threat to profits. UAL led the decliners, falling $2.56 to close at $63.81.
Shares of the biggest U.S. computer makers--including IBM, down $3.88 to close at $116.63--were held back by several factors. Goldman Sachs told clients it expects weaker consumer demand for computers in the coming months, analysts said.
Compaq fell 94 cents to close at $22.94 after US Bancorp Piper Jaffray analyst Ashok Kumar said the computer maker could post an operating loss in the second quarter. Kumar said Compaq is losing market share to Hewlett-Packard.
Volume was light as traders looked toward Friday, when the government will report on producer prices. Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla., said traders will use those data to firm up their bets on whether the Fed will raise rates.
“The figures tell a story of how wage pressures are being met, and whether we may be approaching a breaking point,” he said.
Declining issues outnumbered advancers by an 8-5 ratio on the New York Stock Exchange, where consolidated volume was moderate.
The NYSE composite index fell 6.17 points to 630.77, while the American Stock Exchange composite index fell 5.23 points to 772.92 and the Russell 2,000 index of smaller companies fell 3.13 points to 443.76.
Among the highlights:
* Bank of New York climbed $2.38 to $37.06 after saying it will buy back $1 billion in stock with proceeds from the sale of its lending and factoring unit to General Motors Acceptance, a unit of General Motors.
* While several of the high-tech leaders faltered, some stocks in the volatile Internet sector held up fairly well. Infoseek rose $5.63 to $48.63 after Walt Disney said it is negotiating to buy the 57% of the Web search company it does not already own. Disney slipped $1.25 to $29.63.
* BackWeb Technologies, which makes Internet communication software used by companies such as AT&T; and Cisco Systems, rose 64% in the first day of trading after its initial stock sale. The Tel Aviv-based company’s shares zoomed $7.69 to $19.69, giving it a market value of $690 million.
Market Roundup, C9
