Anxiety on interest rates hurts stocks Dow falls 21 MARKETS

WALL STREET

June 09, 1993|By Bloomberg Business News

NEW YORK -- Stock prices closed lower yesterday for a second straight session, as the market was buffeted by confusion over the direction of interest rates.

"You have a lot of cross-currents," said Robert Stovall, president of Stovall/Twenty-First Advisers. "There are inflationary fears, but gold's down and oil's up. And you have bank stocks rallying."

The Dow Jones industrial average dropped 21.59 points, to 3,510.54, after having fallen 13 points Monday. The Standard & Poor's 500 Index fell 2.98, to 444.71, and the Nasdaq Composite Index dropped 6.87, to 687.74. Declining common stocks on the New York Stock Exchange exceeded advancing issues by about 11-to-4.

Trading was moderate, with about 241 million shares changing hands on the Big Board.

"Everybody's worried about what's going to happen to interest rates," said Philip Smyth, a market analyst at Birinyi Associates.

Fixed-income government securities dropped after Federal Reserve Board officials reinforced expectations that the Fed will soon raise short-term interest rates to rein in inflation. One Fed governor, Lawrence Lindsey, said the Fed would do "whatever is necessary" to curb inflation.

The 30-year bond fell about 1/2 point, to yield 6.91 percent, up 3 basis points.

Mr. Lindsey's remarks followed a vote by Fed policy-makers May 18 to stand ready to raise rates if the Fed detects signs of rising inflation. A re

port Friday showing that job growth had been unexpectedly strong in May bolstered expectations of higher interest rates.

All eyes have turned to Friday, when the Labor Department is scheduled to release wholesale price figures for May. Economists expect the report to show that producer prices rose 0.1 percent last month, down from a 0.6 percent rise in April.

The combination of a possible increase in short-term interest rates and pessimistic outlooks for such companies as Deluxe Corp. and Apple Computer Inc. are causing investors to question stocks' high price-to-earnings ratios.

"A lot of these high P/E stocks have been carrying the market," said Richard Meyer, director of institutional trading at Ladenburg, Thalmann & Co. "Higher rates don't help any of these stocks, because higher rates mean it costs more to borrow to expand. That eats away at earnings."

Deluxe sank $6, to $39.625. The check printer said it expects to break even in the second quarter, after taking a $65 million pretax charge to close 16 of its 60 check-printing plants and eliminate about 875 jobs because of increased competition. The news prompted analysts at Piper Jaffray and Goldman, Sachs & Co. to lower their ratings of Deluxe.

Apple Computer dropped $1.25, to $49.50, after having tumbled $4.125 Monday, as more analysts reduced earnings estimates for Apple.

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