Surge in bond rates slams stocks Dow falls 20

April 14, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks dropped yesterday for a second consecutive day, shadowing bond prices, amid concern that rising interest rates this year will diminish corporate earnings.

The Dow Jones industrial average closed at 3,661.47, down 20.22, after a late rally brought the index back from a 50-point decline earlier in the day. The yield on the 30-year government benchmark bond surged to 7.26 percent, from 7.21 percent Tuesday.

The slump led the New York Stock Exchange to invoke its "uptick" rule -- imposed when the Dow industrials drop 50 points -- for the 11th time this year in an attempt to stabilize the stock market by curbing some computer-guided trading.

"The momentum" is for higher rates, said Cummins Catherwood, managing director at Rutherford, Brown & Catherwood Inc. in Philadelphia. The Federal Reserve will probably raise rates for a third time this year in the next month or two, he said.

That leaves investors betting on a "race between corporate earnings

and interest rates," to see if growth in profits can outpace rising rates, said Jim Benning, an equity trader at BT Brokerage.

Among companies reporting lower-than-expected earnings yesterday were Hilton Hotels Corp., Charles Schwab Corp. and SciMed Life Systems Inc. Procter & Gamble Co.'s unexpected $102 million first-quarter charge from a soured financing also prompted concern that other companies may report similar difficulties.

Stocks also were buffeted by at least two rounds of computer-guided sell orders, one of which chopped 24 points from the Dow industrials, according to Birinyi Associates in Greenwich, Conn.

The concern about rising inflation continued unabated even after the government reported that the March consumer price index, one measure of inflation, gained 0.3 percent, about what economists had forecast, and last month's retail sales grew 0.4 percent, below forecasts.

"The last two weeks, this has been a very tentative, antsy market," said Mr. Catherwood, who helps manage assets of $270 million. Prices are likely to decline if given "the slightest push" from rising rates or an event such as Procter & Gamble's charge, he said.

"There are probably 25 more companies out there that could say, 'This happened to us too,' " Mr. Catherwood said. P&G fell 25 cents, to $53.625, after sliding $1.125. Bankers Trust, which P&G hinted it might sue for designing the two leveraged transactions, dropped $1.875, to $69.625.

The Standard & Poor's 500 index fell 1.31, to 446.26, as software, oil, automobile, bank and computer stocks declined.

The Nasdaq combined composite index fell 11.83, to 727.39, led by losses in technology stocks such as Oracle Systems Corp., Microsoft Corp., Sun Microsystems Inc. and Lotus Development Corp.

More than 13 stocks dropped for every six that rose on the New York Stock Exchange, where volume rose to 280.8 million shares from 256.2 million Tuesday.

"What was really leaning on the market was the bond market, plus the continued weakness in the technology stocks," where some investors are "getting annihilated," said Richard Meyer, head of institutional trading at Ladenburg, Thalmann & Co. Many investors are choosing to sell first, "in case of [negative] earnings surprises," he said.

Motorola Inc. was unchanged, at $95.50, after falling as low as $94. Intel sank $2, to $63.75, after falling $3.4375 Tuesday; Texas Instruments dropped $2.75, to $70.25, after sliding $5.625; Micron Technology Inc. lost $2.875, to $83.625.

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