U.S. Stocks Continue Slide Amid Fears of a Rate Boost
Wall Street suffered another down day Thursday as bond yields rose again amid growing expectations of a credit-tightening move by the Federal Reserve.
Despite a late-day rebound from a drop of 164 points, the Dow Jones industrials slid 69.02 points, or 0.7%, to 10,621.27.
Broader indexes also fell, with the Nasdaq composite down 1.4% and the Standard & Poor’s index of 600 smaller stocks off 0.6%.
Losers outnumbered winners by 19 to 10 on the New York Stock Exchange, though trading volume remained anemic--as it was during last week’s market rebound.
The depressed volume suggests a lack of conviction among both buyers and sellers.
Still, the trend among blue-chip stocks has been down since mid-May, as bond yields have risen to 13-month highs amid robust U.S. economic growth.
The benchmark 30-year Treasury bond yield rose further Thursday, closing at 6.06%, up from 6.02% on Wednesday and the highest level since April 1998. Shorter-term yields also rose.
Bond yields were pushed higher worldwide after the Japanese government said the world’s second-largest economy grew 1.9% in the first three months of the year after five straight quarters of contraction.
That bolstered expectations for renewed economic growth across Asia this year--a development that could raise inflationary pressures.
With the U.S. economy still strong, faster Asian growth could be the excuse the Fed needs to raise short-term interest rates, experts say.
“There are growing signs the global economy is now becoming more growth-oriented,” said Robert McHenry, who helps manage about $50 billion at Hartford Investment Management Co. “That’s traditional bear market stuff for bonds and adds to further pressures on the Fed.”
The Fed meets June 29-30.
Fed Gov. Roger Ferguson said Thursday that the U.S. growth rate poses inflation risks. That followed comments Tuesday from President William Poole of the Federal Reserve Bank of St. Louis that inflation is likely to quicken in the coming months.
Fed Chairman Alan Greenspan, however, didn’t mention monetary policy or the economy in prepared remarks released before a commencement address to Harvard University graduates Thursday. Stocks rallied late in the day after getting wind of Greenspan’s text.
U.S. economic reports to be released today on May wholesale price inflation and retail sales may provide more evidence of economic strength, setting the stage for still higher bond yields, analysts warned.
And “if it looks like interest rates are going up, stocks are going down,” said John Cleland, chief investment strategist at Security Benefit Group in Topeka, Kan. “It’s that simple.”
So far, however, the damage overall has been limited. The Dow now is down 4.4% from its 1999 peak. The Nasdaq index is down 6.3% from its peak.
Meanwhile, Japan’s announcement sent its main share index up 2.9% on Thursday and boosted other Asian markets. Europe, however, was broadly lower as bond yields there rose.
Among Thursday’s highlights:
* Financial stocks suffered as rates rose. Citigroup fell $1.06 to $42.25, Merrill Lynch lost $2.56 to $70 and American Express fell $2 to $123.13.
* Major growth stocks fell, also victims of higher interest rates. The drug group led the decline, but other consumer-stock losers included Clorox, down $2.19 to $102.81; Wal-Mart, down $1 to $43.13; and Gillette, down $2.19 to $48.50.
Also, Thousand Oaks-based Amgen plunged $4.06 to $53.69 after Transkaryotic Therapies said Wednesday that it’s seeking to reopen a patent dispute over its potential rival to Amgen’s blockbuster Epogen drug.
Amgen’s patent-infringement action against money-losing Transkaryotic and its development partner, leading German drug maker Hoechst, has been on hold since 1998. A court said then that the matter could be reopened at Transkaryotic’s request or when development of the drug was completed.
* Tech stocks were mostly lower, led by Gateway, down $3.19 to $58.81, and Microsoft, down $2.44 to $79.88.
But semiconductor shares rallied amid fresh optimism about 1999 chip sales. Intel gained $2.25 to $55.38, Texas Instruments rose $2.38 to $125.75 and National Semiconductor rose $1.81 to $22.50. The U.S. Semiconductor Industry Assn. said this week that it expects global sales to rise 12% in 1999.
* On the plus side, some industrial shares were aided by the news of Japan’s improvement. Alcoa rose $1.75 to $64.75, International Paper rose $1.69 to $53.75 and Phelps Dodge rose $2.06 to $59.38.
* Among Southland issues, sportswear maker Quiksilver fell $2.25 to $24. The company said it was unaware of any developments that might be pressuring its stock in recent days.
Market Roundup, C10
