Stocks slip on interest rates, election in Russia

WALL STREET

December 15, 1993|By Bloomberg Business News

NEW YORK -- U.S. stocks fell yesterday on concern about rising interest rates and the election in Russia, where hard-line nationalists won more parliamentary seats than expected.

The Dow Jones industrial average closed 21.80 points lower at 3742.63. The decline marked the second time in 10 sessions that the average has fallen, and it came a day after the Dow industrials rallied to a record close of 3764.43.

The Nasdaq Combined Composite Index slumped for a seventh day, falling 8.25 points to 751.47. The Standard & Poor's 500 Index slumped 2.63 to 463.07, led by a slide in shares of auto and international oil companies.

"The hard-liners are gaining political clout in Russia," said Richard Meyer, head of institutional trading at Ladenburg, Thalmann & Co. "That's raising concern about the future of President Yeltsin, who has always been perceived positively by those in the White House."

Meantime, interest rates were climbing. Rates still are driving this stock market, analysts said. When rates go up, stocks tend to go down; when rates go down, stocks go up.

"Rates have been going up," said Barbara Friedman, who co-manages $62 million for Loomis Sayles & Co. in Boston. "It's becoming more and more clear that interest rates aren't going to go much lower, and that's creating big worries for people in the stock market."

The yield on the benchmark 30-year Treasury bond climbed to 6.30 percent yesterday from 6.23 percent, and now sits well above the record Oct. 15 low of 5.77 percent. The rise in rates has occurred amid increasing evidence the economy was strengthening. The concern was that an improving economy would fuel a rise in the inflation rate. The government said yesterday that retail sales rose 0.4 percent in November.

Federal Reserve Vice Chairman David Mullins warned of higher rates last week when he said the Fed probably would boost the federal funds rate next year. The federal funds rate is the rate banks charge each other for overnight loans.

If the Fed were to raise the funds rate from its 3 percent level, all money-market rates would rise. The yield on the three-month Treasury bill was recently 3.11 percent, up from a Sept. 27 low of 2.97 percent.

The direction of money-market rates is among the most important statistics used to determine whether stocks or fixed-income securities are the better investment. They are often overlooked because people tend to focus on the yields of longer-duration fixed-income securities such as 30-year Treasury bonds.

Institutional investors make decisions based on money-market rates more often than they do on long-term rates. "The bottom line is interest rates are rising, and this bull market is getting old," said William Raftery, market analyst at Smith Barney Shearson Inc.

Yesterday, shares of database software companies fell after Informix Corp. said the company was reducing prices for some of its products. Informix fell 87.5 cents to $17.625, Oracle Systems Corp. slid $1.50 to $34.50, Sybase Inc. declined $1.75 to $38.25, and Microsoft Corp. fell $1.375 to $80.

On the New York Stock Exchange, more than two common stocks were lower for every one that gained. The American Stock Exchange Market Value Index declined 2.94 to 461.83.

Trading was active, with more than 273 million shares changing hands on the Big Board. Simon Property Group Inc., Software Toolworks Inc., American Mobile Satellite Corp., Circuit City Stores Inc. and Grupo Televisa SA were the five most actively traded stocks on the U.S. Composite.

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