Nasdaq gains in face of market retreat Dow off 6.2

January 14, 1994|By Bloomberg Business News

NEW YORK -- A surge in interest rates sent most U.S. stocks into retreat yesterday, even as the Nasdaq composite index squeaked to a record.

Concern about rates was compounded by the prospect of lower-than-expected earnings at Oracle Corp., the nation's biggest data base software maker, and Quaker Oats, a major food producer.

"People have pretty high expectations for earnings, so the numbers are going to be watched closely," said Barry Berman, head trader at Robert W. Baird. "I think the stock market's acting very well, considering the bond market is down as much as it is."

The Dow Jones industrial average closed 6.20 lower, at 3,842.43, after sliding as much as 19.42 points earlier in the session. The average has lost 23.19 points after closing at a record 3,865.51 Monday.

The Standard & Poor's 500 Index declined 1.70, to 472.47, after falling as much as 2.37. It also set its closing high, 475.37, Monday.

The Nasdaq Combined Composite Index staged the biggest recovery. The index rebounded in the final hour to close up 0.94, at a record 787.81, barely surpassing the old high of 787.42, set Oct. 15. Earlier in the day, the index had fallen as much as 2.90 points.

The fact that the stock market didn't fall more, given the rise in interest rates, caused some bearish investors to rethink their bets, traders said. Purchases by people who had previously sold borrowed stock in hopes of a market decline helped lift the

Nasdaq index, traders said.

The index also was buoyed by a rally in Nordstrom Inc. The apparel retailer's stock jumped $2, to $34, on a report showing U.S. retail sales growth hit a four-year high in 1993.

The rise in Nordstrom offset a slump in Oracle. Oracle plunged $2.75, to $32.25, after an analyst at Dean Witter Reynolds, Timothy McCollum, trimmed his earnings forecast. Oracle was the most actively traded U.S. stock yesterday.

Nine stocks rose for every seven that fell on the New York Stock Exchange. Trading was moderate by recent standards, with about 278 million shares changing hands, down from a daily average of 323 million since the beginning of the year.

The stock market's lackluster performance yesterday flew in the face of more evidence that inflation is subdued, traders said.

Most stocks fell victim to a surge in Treasury bond yields, driven by stronger-than-expected consumer spending during the winter holidays. Rising interest rates hurt stocks by helping to make fixed-income investments relatively more attractive. Higher rates also hamper economic growth.

"We've passed the time where the money comes pouring into the stock market the first week of January," said Tom Gallagher, head trader at Oppenheimer & Co. "There's very little cash around" for further gains.

The Commerce Department said retail sales in December rose 0.8 percent, compared with a gain of 0.3 percent in November. This brought the annual gain to 6.2 percent -- the best yearly increase since 1989. Economists had expected December retail sales to rise 0.3 percent.

The retail sales report rekindled concern about inflation, which erodes the value of fixed-rate investments. The yield on the benchmark 30-year bond rose to 6.26 percent yesterday, up from 6.18 percent Wednesday.

Even a report yesterday that consumer prices rose last year just 2.7 percent, the smallest gain in seven years, wasn't enough to ward off rising interest rates.

Quaker Oats tumbled $3.375, to $66, after the food company said earnings for the quarter that ended Dec. 31 fell between 15 percent and 20 percent from the previous year's 77 cents a share, primarily because of sluggish sales in Europe.

Corporate profits are expected to be up a healthy 18 percent or more on average for S&P 500 companies in the fourth quarter.

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