Stocks fall over concern about rising interest rates

January 25, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks declined yesterday amid concern about a rise in interest rates and a market slump in Japan.

The Dow Jones industrial average closed 1.69 lower, at 3,912.79, after soaring 22.52 Friday, to a record 3,914.48. The average hit a session high of 3,934.46 before a burst of computer-driven sell orders helped knock stock prices lower.

The slide in stock prices was triggered by concern about a rise in interest rates, as the yield on the benchmark 30-year Treasury bond climbed to 6.29 percent from a low of 6.26 percent, #F analysts and fund managers said.

"Interest rates are up steadily since mid-December and, while still low, they are beginning to worry some investors," said James McGonigle, who helps manage $600 million for Jamison Eaton & Wood Inc. in Chatham, N.J.

Low interest rates are the main reason stock prices are as high as they are, Mr. McGonigle said. As bond yields rise, money tends to flow to fixed-income securities from stocks, he said.

The decline in stocks was minimal compared with how well the market has done this year. The Dow industrials have climbed in 11 of the past 16 trading sessions and are up almost 5 percent since the start of the year.

The Standard & Poor's 500 Index fell 2.75 yesterday, to 471.97, and the Nasdaq Combined Index slumped 3.63, to 790.66, after reaching an all-time high of 794.29 Friday.

On the New York Stock Exchange, 10 common stocks were lower for every seven that rose. The American Stock Exchange Market Value Index fell 1.37, to 483.37.

Japan's Nikkei 225 Index lost almost 5 percent of its value overnight, falling 954.19 points, to 18,353.24. The slump hit after the Japanese Parliament's upper house rejected Friday Prime Minister Morihiro Hosokawa's political-reform package.

Other problems are increasing odds that corporate profits will fall below analyst expectations and the possibility that interest rates will rise as commodity prices move higher, said Gail Dudack, market strategist at S.G. Warburg & Co.

So far this month, companies are reporting fourth-quarter earnings above analyst expectations, said Don Hays, director of investment strategy at Wheat First Butcher & Singer.

More than 1,000 U.S. companies have reported fourth-quarter results, and almost three-quarters of the earnings have been above last year's levels, Mr. Hays said.

Shares of International Business Machines Corp., Caterpillar Inc. and Apple Computer Inc. were among those that rallied on optimism about the earnings outlook.

IBM shares gained $3.25, to $58.50, amid expectations the company will unveil its first profitable quarter in a year when it releases its latest financial results tomorrow. The company is expected to report earnings of 59 cents a share for the fourth quarter, according to Zacks investment Research.

Caterpillar soared $1.625, to $100.25, after rising $4.625 Friday. The farm machinery company said it earned $1.17 a share in the fourth quarter, compared with a loss of 22 cents a share in the prior year.

Apple shares rose $1.625, to $35, after climbing $3.50 Friday. The maker of Macintosh personal computers released quarterly earnings that exceeded Wall Street estimates.

Trading was active, with about 296.9 million shares changing hands on the Big Board.

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