Stocks decline as rates rise Dow loses 11.18 Signs of pickup in economy rattle bond market

WALL STREET

October 01, 1993|By Bloomberg Business News

NEW YORK -- Stock prices fell yesterday as long-term interest rates rose. Stocks had risen earlier in the day after government reports suggested that the economy was picking up speed.

"A direct correlation between economic reports and market reaction doesn't exist," said Michael Landry, president of Mackenzie Investment Management Inc. in Boca Raton, Fla. Yesterday saw "a lot of selling to readjust portfolios" on the final day of the third quarter.

The Dow Jones industrial average fell 11.18 points, to 3,555.12. General Motors Corp., Exxon Corp. and Goodyear Tire & Rubber Co. paced the decline in the Dow.

Among broader averages, the Standard & Poor's 500 Index dropped 1.18, to 458.93, and the Nasdaq Combined Composite Index fell 0.39, to 762.78, led by Intel Corp., Oracle Systems Corp. and Cisco Systems Inc. The American Stock Exchange Market Value Index rose 2.74, to 460.39, near the record of 461.57, set Sept. 3.

Advancing stocks led declining issues by about 10-to-7 on the New York Stock Exchange. About 294 million shares changed hands.

An unexpectedly large drop in claims for jobless benefits, a stronger purchasing managers' report and rising oil and gold prices raised concern among bond investors about inflation. That worry sent long-term interest rates higher, driving the Dow down 18.16 points at one stage.

Bond prices fell, sending the yield on the 30-year Treasury bond as high as 6.05 percent, from 5.99 percent Wednesday. The yield closed at 6.02 percent. The record low of 5.84 percent was set Sept. 8.

Stocks rallied at midday after reports that President Boris N. Yeltsin of Russia would meet today with political opponents in an effort to end the siege of the dissolved parliament.

"That firmed up bonds and stocks," said Jack Baker, head of equity trading at Furman Selz Inc. If the situation in Russia "is really cleared up this week, that'll put downward pressure on metals [prices] and maybe the oils," he said.

Economic reports -- including news that the Chicago Purchasing Management Index rose in September and that personal income and spending were stronger in August -- rattled the bond market. The direction of interest rates has been more critical to the stock market than has the pace of economic recovery.

"The stock market's been taking its cue more from the bond market than from economic growth," said Walter Revis, market analyst at Hamilton Investments in Chicago.

"There's not that much support being provided by the bond market for stocks," said James Solloway, director of research at Argus Research.

Meanwhile, oil for November delivery gained 12 cents, to $18.79 a barrel, after having surged 71 cents Wednesday, to its highest close since Aug. 30. Gold for December delivery rose $2.40 an ounce, to $357.10.

Oil rose after the Organization of Petroleum Exporting Countries agreed to limit output to 24.5 million barrels a day, a drop of 200,000 barrels from current production, and to lock in quotas for six months.

"Whenever you have big, positive moves in the energy sector, that correlates into weakness in the broader market," said Mr. Solloway of Argus Research.

Higher oil prices damaged transportation stocks. The Dow Jones transportation average slid 9.4, to 1,628.13, after having tumbled 16.25 Wednesday.

Oil stocks generally rose, helped by upgraded recommendations from Kidder, Peabody & Co.

Some analysts questioned whether oil prices would rise much farther. "Other than what OPEC's done this week, there's still such a glut of oil," said Mr. Baker of Furman Selz.

General Motors fell $1.875, to $42, amid concern about its sales and market share and remarks by company officials that it could not afford a recent agreement between Ford Motor Co. and the United Auto Workers union.

USAir Group Inc. fell 12.5 cents, to $12.50. It said it expected to record a third-quarter loss of $180 million and announced plans to cut 2,500 full-time jobs as a result.

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