Stocks fall as rising consumer prices lift interest rates Dow off 18

WALL STREET

September 15, 1993|By Bloomberg Business News

NEW YORK -- Stocks declined yesterday as an unexpected jump in August consumer prices sent long-term interest rates soaring and a weak retail sales report raised concern about the economic recovery.

"Everybody was expecting inflation to be dead, but the CPI was up more than expected," Dale Tills, manager of institutional equities trading at Charles Schwab & Co. in San Francisco, said, referring to the Consumer Price Index. Rising interest rates diminish the allure of stocks relative to fixed-income investments.

The Dow Jones industrial average lost 18.45 points, to 3,615.76, after having fallen as low as 3,606.82. J.P. Morgan & Co. led the decline in the Dow.

Among broader market indexes, the Standard & Poor's 500 Index dropped 2.18, to 459.88, paced by declines in telephone, retailing, semiconductor, auto and bank shares.

The Nasdaq Combined Composite Index plummeted 7.68 points, 732.64, extending Monday's 3.98-point slide. Intel Corp. and Microsoft Corp. led the decline.

Declining stocks exceeded advancing issues by a margin of about 2-to-1 on the New York Stock Exchange. Trading was active, with about 259 million shares changing hands.

Also yesterday, the Commerce Department reported that retail sales rose 0.2 percent in August for the fifth straight advance, as demand for building materials increased in the wake of the Midwest flooding. Although the rise in retail sales surpassed expectations for a 0.1 percent decline, the figures still suggest a sluggish economy.

"The economy has no momentum, and that's reflected in retail sales," said Grace Messner, a portfolio manager who oversees about $170 million in assets for Wilmington Trust Co. "There's growing concern that profit expectations might be a little excessive."

Airline stocks fell on a new round of industry fare cuts, and banking stocks were hurt by the surge in bond yields and negative comments by a PaineWebber Inc. analyst. Computer stocks, meanwhile, sagged after Compaq Computer Corp. projected little growth in the industry's North American sales in the second half, after a 40 percent increase in the first half.

The yield on the 30-year Treasury bond leapt to 5.97 percent, from 5.87 percent late Monday. The yield's record low of 5.84 percent was set Sept. 8.

"When bonds are trading at this lofty level, everything has to hit right, and the CPI didn't hit right," said Thomas Gallagher, head trader at Oppenheimer & Co.

Treasury bond yields surged after the Labor Department reported that the CPI rose 0.3 percent in August. The rise in retail prices was 0.3 percent even when food and energy were excluded.

The inflation report surprised traders because it followed Friday's report that producer prices, depressed by a plunge in tobacco prices, declined 0.6 percent in August.

The surge in bond yields took a toll on the shares of banking companies, whose earnings benefit from falling interest rates, and on utilities, whose above-average dividend yields attract investors when interest rates are low.

J.P. Morgan shares tumbled $2.125, to $75.875, after an analyst at PaineWebber Inc. reduced his investment rating of J.P. Morgan and Bankers Trust New York Corp. to "unattractive," from "neutral."

Bankers Trust fell $2.50, to $80.

The Dow Jones utilities average slumped 1.32 from Monday's all-time closing high, to 255.14.

Computer, software and semiconductor stocks were roiled by the outlook for industry sales delivered by Compaq during a trade show in Houston, although Compaq said the forecast did not contain new information and was based on widely available industry research.

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