Stocks Skid; Bond Yields Surge
Stocks ended broadly lower Monday as oil prices hovered near $52 a barrel and shares of two biotech companies plummeted after they suspended sales of a multiple sclerosis drug.
In the bond market, Treasury yields jumped after the government reported a bigger-than- expected rise in an inflation index closely tracked by the Federal Reserve. The 10-year T-note yield hit a three-month high.
Wall Street pulled back after a rally last week carried the Dow Jones industrial average to just under the 3 1/2 -year high reached on Dec. 28.
The Dow slid 75.37 points, or 0.7%, to 10,766.23, although it was down as much as 111 points at its low for the day.
Among broader indexes, the Standard & Poor’s 500 was down 7.77 points, or 0.6%, to 1,203.60, and the Nasdaq composite lost 13.68 points, or 0.7%, to 2,051.72.
Declining issues outnumbered advancers by about 8 to 5 on the New York Stock Exchange as trading volume jumped from last week’s levels.
The decision by Biogen Idec and its partner Elan to suspend sales of their much-heralded drug Tysabri sent their stocks plunging and dragged down much of the healthcare sector. The companies cited a patient’s death and said more research would be needed.
“Biogen is a pretty major biotech stock, and having a stock like that down 40% puts a pall over the market,” said David Straus, a money manager at Johnston Lemon Asset Management in Washington.
Biogen dropped $28.63, or 43%, to $38.65; Elan dived $18.90, or 70%, to $8.
Continued strength in oil prices also weighed on markets. Near-term crude oil futures in New York rose 26 cents to $51.75 a barrel.
Fresh worries about inflation arose after the Commerce Department’s latest reading on January consumer income and spending. An inflation gauge in the report was up 0.3% for the month, excluding food and energy costs. It was the fastest rise in the so-called core inflation rate in more than two years.
The Federal Reserve watches that inflation measure closely as it tracks price pressures in the economy. The jump in January could put pressure on the Fed to tighten credit at a faster rate, analysts said.
“Inflation is on everyone’s radar screen,” said Kenneth Hackel, co-head of interest rate strategy at RBS Greenwich Capital.
Investors’ jitters sent the yield on the benchmark 10-year Treasury note to 4.38%, up from 4.27% on Friday and the highest since early December. The two-year T-note rose to 3.6% from 3.52% Friday.
Bond investors will be focused on Capitol Hill on Wednesday: Fed Chairman Alan Greenspan is scheduled to testify before the House Budget Committee.
On Friday, the government will report on February employment. A big jump in new jobs could stoke a major selling spree in bonds, some analysts warn.
That also could test the resolve of bulls in the stock market. Despite persistent inflation fears and rising oil prices, blue-chip stock indexes rallied in February: For the month, the Dow was up 2.6% and the S&P; 500 gained 1.9%. But the tech-heavy Nasdaq index eased 0.5%.
Among the day’s market highlights:
* The biotech sector fell sharply on the Biogen-Elan news. Amgen slumped $1.20 to $61.61, Genentech lost $1.04 to $47.20, Protein Design Labs sank $2.35 to $14.98 and Genzyme was off $1.64 to $56.09.
But Teva Pharmaceutical Industries, which makes a competing MS treatment, jumped $2.55 to $30.11.
* The drug sector also was roiled as Mylan Laboratories and King Pharmaceuticals called off their proposed merger after failing to reach a revised agreement. Mylan rose 66 cents to $17.60 and King was off 76 cents at $9.49.
* American International Group declined $1.55 to $66.80. New York Atty. Gen. Eliot Spitzer widened his investigation of AIG to include the company’s relationship with specialist insurance company CV Starr, the Financial Times reported over the weekend. CV Starr is majority-owned by AIG executives. A measure of insurance companies’ shares dropped 1.3%.
* Banc of America Securities downgraded General Motors and rival Ford to “sell” from “neutral,” saying that both U.S. automakers would continue to lose market share to their European and Japanese rivals. GM slid $1.24 to $35.65 and Ford lost 35 cents to $12.65.
* Department store chain Federated Department Stores lost 34 cents to $56.45 after it finalized an $11-billion takeover agreement for May Department Stores over the weekend. The combined company would be the second-largest department store company in the nation. May slipped 84 cents to $34.51.
* Trucking firm USF surged $8.98, or 23%, to $47.80 after it agreed to be bought by larger rival Yellow Roadway for $1.47 billion in cash and stock. Yellow was down $3.56 to $57.75.
