Inflation fears subdue stock market


March 17, 1993|By Bloomberg Business News

NEW YORK -- Stocks closed little changed yesterday amid concern that today's consumer price report might reveal a resurgence of inflation. Declines in drug and other health care stocks outweighed strength in oil and utility issues.

"If the rise in consumer prices exceed economists' forecasts, the stock and bond markets will encounter big problems," said Michael Lenahan, head trader at James Capel.

Economists estimate that consumer prices rose 0.3 percent last month. The Labor Department will release the Consumer Price Index for February this morning.

The Dow Jones industrial average added 0.54, to close at Standard & Poor's 500 Index dipped 0.06, to 451.37, and the Nasdaq Combined Composite Index rose 0.26, to 695.47.

Declining issues narrowly outnumbered advancing ones on the New York Stock Exchange. Trading accelerated from Monday's pace, with about 219 million shares changing hands on the Big Board.

Inflation concerns resurfaced last week when the Labor Department said prices paid by wholesalers had climbed 0.4 percent in February, the biggest jump in inflation at the producer level since November 1990.

"Everybody wants to see some more economic numbers before they make any decisions," said Philip Smyth, a market analyst at the research firm Birinyi Associates. "Nobody wants to commit until they get more facts."

If the CPI report reveals a sharper rise than expected, "I think you could see a pretty big sell-off," said Jim Benning, a trader at BT Brokerage.

"Bonds are rebounding, and that's giving the stock market some support," Mr. Lenahan said. "However, concern that inflation is on the rise continues to hang over this market."

In addition, the stock market received some disappointing economic news yesterday when the Commerce Department said housing starts rose 2.5 percent in February, to an annual rate of 1.21 million. Economists had estimated a 4.2 percent gain.

Building permits, a harbinger of planned construction, fell 3.1 percent in February, to 1.144 million, after declining 1.7 percent in January, to 1.180 million.

"The decline in permits is sort of ominous and foreshadows a slowdown in coming months," said Marco Babic, an economist at Evans Economics in Washington.

Oil stocks, followed by telephone and utility issues, posted the biggest gains yesterday. Oil shares also were buoyed by Britain's plan to cut taxes on oil production July 1.

"The only thing holding up the market is the oil stocks," said Mr. Benning of BT Brokerage. "Drug stocks are getting beat up as usual." Given the Clinton administration's proposed health care reforms, he said, "it's not an area you want to be in."

Britain's plan to lower production taxes would benefit companies such as British Petroleum PLC, Exxon Corp., Mobil Corp. and Amerada Hess Corp., analysts said.

BP's American depositary receipts, each of which represents 12 ordinary shares, rose $1.75, to $52.125. Exxon gained 75 cents, to $64. Mobil advanced $1.375, to $69.50, rising as high as a new 52-week high of $69.625 during the day, and Texaco rose $1.25, to $63.625.

Drug, health-care, pollution control, and chemical issues fell the most in the S&P 500 amid bearish earnings outlooks from Eli Lilly & Co., Marion Merrell Dow Inc., and Chemical Waste Management Inc.

Treasury bonds began to recover from a two-session decline after the Federal Reserve Bank of New York said it's buying Treasury securities through an operation known as a "coupon pass" that adds reserves to the banking system. The yield on the benchmark 30-year Treasury bond was 6.86 percent in afternoon trading, down 5 basis points on the day.

Ethan Allen led a roster of IPOs that traded above their initial offering price. The furniture retailer's stock closed at $22.75, above the $18 IPO price. Ethan Allen sold 7.35 million shares through underwriters led by Kidder, Peabody & Co.

Bearish earnings outlooks from Eli Lilly & Co. and Marion Merrell Dow Inc. triggered a slump in drug stocks.

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