Dow again gyrates, ending down 21.11 at 3,598.71

April 21, 1994|By New York Times News Service

Yesterday was a baffling day on Wall Street.

For months, the stock market has followed the bond market, in lock step, up and down, but mostly down. Yet when bonds rallied yesterday, stocks plunged, as good signals from the bond market alternated with bad signals elsewhere. When stock traders become baffled, they tend to sell.

And they sold yesterday in unusually hectic trading. The Dow Jones industrial average fell 21.11 points, to 3,598.71. The broader Standard & Poor's 500-stock index also fell, but less precipitously -- 0.58 point, to 441.96. The Nasdaq combined composite index, heavy with battered technology stocks, continued its steep drop of the last week or so, falling 7.33 points, to 705.52.

Even companies reporting strong earnings -- but that were below Wall Street estimates -- saw their prices plunge.

"We're just murdering stocks that don't deliver," said Anthony T. Conroy, managing director of equities at Mabon Securities in New York.

Morton International, maker of salt and specialty chemical products, is a case in point. It reported a 48 percent increase in third-quarter profit, to $1.42 a share, but Wall Street analysts had been expecting earnings of as much $1.50 a share. Traders sliced 10 percent off Morton's share price, leaving it at $82.75, down $10.125.

What was especially confusing was the behavior of stock traders' counterparts in the bond market. Presumably assessing the same data, bond traders had one of the best sessions recently in a persistently sour market. Bond traders bid down long-term interest rates, which are the key to borrowing costs for everyone from General Motors to the consumer in the dealer's showroom.

The benchmark 30-year Treasury bond's yield fell 5 basis points, to 7.32 percent, as the bond's price rose. When the inflation outlook improves, bond prices rise, and traders do not have to offer higher yields to entice buyers.

But it seems that bond traders should not have been pleased. The day, at least in the peculiar reasoning of Wall Street, should not have started well. The Commerce Department reported a 12.1 percent increase in March housing starts, compared with Wall Street's expectations of a 7.9 percent jump.

The figure meant that despite higher interest rates, the housing market was strong, probably indicating future inflation.

"The housing starts figure was important for two reasons," said Alfred E. Goldman, director of market analysis at A. G. Edwards & Sons in St. Louis.

"It meant that Alan Greenspan's view that the economy could be overheating had some validity. No. 2, it posed a test for the bond market, and it passed." What should have prompted another drop in bond prices instead led to a lift in the market, he noted, meaning that bond prices may at last be bottoming out.

"It's too soon to say whether the bear market for bonds is over," Mr. Goldman said. "But we're close."

TC And if Mr. Goldman is right, that is the good news in yesterday's chaotic session: The bond market may at last be pulling out of its slump. If so, an improving bond market could lay the groundwork for an imminent rally in stocks, which thrive when borrowing costs stabilize, analysts say.

For yesterday, however, the trend was still down.

The day's trading volume of nearly 367 million shares on the New York Stock Exchange was one of the heaviest of the year.

Declining stocks outnumbered advancing stocks by 1,417 to 835.

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