Dow slips 4.50 on interest-rate jitters

March 09, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks declined yesterday amid concern about whether the Federal Reserve Board plans to raise interest rates.

"There's a lot of nervousness around about interest rates," said Anthony Conroy, head trader at Mabon Securities Inc. "Everybody is waiting to see what the Fed does next."

The Dow Jones industrial average fell 4.50, to 3,851.72. Weakness in shares of AlliedSignal Inc. accounted for much of the slide.

Standard & Poor's 500 Index slumped 1.03, to 465.88, and the Nasdaq Composite Index declined 2.93, to 792.12. The American Stock Exchange Market Value Index fell 1.38, to 467.68. Five common stocks were lower for every four issues that rose on the New York Stock Exchange.

The decline in stocks was triggered by a rise in interest rates as the yield on the 30-year Treasury bond rose to 6.84 percent, from the day's low of 6.76 percent. The rise in rates occurred amid confusion about comments from Fed officials.

Federal Reserve Board Governor Lawrence Lindsey on Monday said short-term rates will stay at "three something" this year, implying to some that the Fed may not raise rates much more this year. Yesterday, a Fed spokesman said Mr. Lindsey's comment on rates was an offhand remark that was misinterpreted.

"There were questions about whether Lindsey's remarks accurately describe the Fed's position on interest rates," said William Lord, a trader at UBS Securities Inc. "It looks now as though the Fed may be moving toward increasing rates again."

Rising interest rates tend to prompt investors to move funds out of the stock market to the safety of fixed-income securities.

David Malpass, director of international economics at Bear, Stearns & Co., said the Fed will raise short-term rates by at least 25 basis points, to 3.50 percent, before March 22, when the Federal Open Market Committee meets to discuss monetary policy.

"Inflationary pressures have built up in the pipeline," Mr. Malpass said. "We think the Fed is aware of all this and therefore expect them to raise rates."

The Dow Jones utilities average, down more than 8 percent since the beginning of the year, fell again yesterday. Utilities are considered among the most vulnerable stocks to interest rate increases because people buy them, in large part, because of their high dividends. When interest rates go up, those high dividends lose their attractiveness. The Dow utilities average closed off 1.85 yesterday, at 211.64.

Trading was moderate, with about 295 million shares changing hands on the NYSE, compared with a three-month average of 295.1 million. Synoptics Communications Inc., Telefonos de Mexico SA, Intel Corp., International Business Machines Corp. and SCECorp. were the five most actively traded issues.

Synoptics fell 62.5 cents, to $23.875, after an analyst at PaineWebber Inc. downgraded his investment rating and an analyst at Goldman, Sachs & Co. cut her first-quarter earnings estimate.

IBM rallied $2.50, to $54.75. The computer maker introduced a PowerPC-based notebook-sized computer.

Compaq Computer Corp. rose $1.875, to $100.125. The stock rose after a Kidder, Peabody & Co. analyst said his 1994 sales and earnings estimates are probably too low.

General Motors Corp. gained 50 cents, to $62.125. The automaker's stock was added to the "buy" list at Goldman Sachs.

Conseco Inc. climbed $1.625, to $56.625. The insurance LTC company received a "buy" rating in a new research report issued by Merrill Lynch & Co.

Bell Sports Corp. fell $1, to $37.50. The bicycle helmet maker said it expects to report third-quarter earnings of 28 to 32 cents a share, below analysts' estimates of 34 cents.

Good Guys Inc. gained $1.375, to $18.125. The consumer electronics retailer said it expects second-quarter earnings to surpass analysts' forecasts.

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