Stocks drop as interest rates rise

April 09, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks dropped yesterday as interest rates rose amid concern that next week's inflation reports will encourage the Federal Reserve to push rates higher.

Computer-generated sell programs contributed to the decline in stock prices, according to Birinyi Associates in Greenwich, Conn., which tracked at least four such rounds of selling.

The reports on producer and consumer prices for March will be studied for hints of whether the Federal Reserve will raise rates for a third time this year to stave off inflation, traders said.

"The threat is there that if the reports show inflation rising, the Fed has another tightening move left in its six-shooter," said Joseph DeMarco, managing director for equity trading at HSBC Asset Management, a unit of Hong Kong & Shanghai Bank with $4.5 billion in assets.

Declines in Caterpillar Inc., Aluminum Co. of America and General Motors Corp. drove the Dow Jones industrial average down 19 points, to 3,674.26.

Standard & Poor's 500 index fell 3.78, to 447.10, amid losses in automobile, telephone, retail, utility and drug stocks.

The Nasdaq composite index slid 6.46, to 748.71, as technology stocks such as Microsoft Corp. and Oracle Systems Corp. dropped before Monday's monthly report on semiconductor orders. The Russell 2000 index of small stocks fell 1.26, to 254.69.

Trading was slow, with 265.3 million shares trading hands on the New York Stock Exchange, down from 287.8 million yesterday. Almost two stocks fell for every one that rose on the Big Board.

Yields on the government's benchmark 30-year Treasury bond climbed to 7.26 percent, up from 7.21 percent Thursday, amid concern the Federal Reserve will soon raise rates. Today's losses snapped a three-day rally.

Benchmark rates near 7.5 percent "have changed the psychology of equity investors who thought we were going to stay in a low interest-rate environment," said Peter DaPuzzo, senior managing director at Cantor, Fitzgerald & Co.

When rates are high, people prefer the relative safety of interest-bearing bank deposits and money-market funds to the stock market.

On Tuesday, the Labor Department will report on the prices paid by businesses for materials and supplies, and on Wednesday, the department will report on March consumer prices.

Many investors are "looking for strong [inflation] numbers that will be bad for bonds and bad for stocks," said Jack Baker, chief trader at Furman Selz Inc.

To be sure, many professional investors think the two-month-long decline in stocks that wiped 7.6 percent from the Dow industrials since Jan. 31 is just about over.

"A lot of the damage has already been done," said John Dale, a growth equity portfolio manager at Peregrine Capital Management Inc. in Minneapolis.

"Longer term, I think the market should be all right," Mr. Dale said. "Inflation should be well-behaved.

"We still have a lot of capacity here and abroad in terms of labor, capital and materials," he said.

Computer-related technology stocks dropped before Monday's release of the semiconductor industry's book-to-bill report, or monthly summary of new orders.

Microsoft fell $2.75, to $87; Oracle dropped 68.75 cents, to $32.75; Texas Instruments Inc. dropped $3.125, to $79.375; and Hewlett-Packard Inc. declined 87.5 cents, to $82.875.

Trucking stocks were hurt by a nationwide Teamsters strike against 22 trucking companies, which continued into its third day yesterday. J. B. Hunt Transport Services Inc. fell $2.25, to $21; Roadway Services Inc. fell $1.875, to $65.625; Yellow Corp. fell 12.5 cents, to $23.375; and Arkansas Best Corp. dropped 50 cents, to $12.375.

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