Bond, dollar weakness hurts stocks Dow off 16

May 05, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed lower yesterday amid a decline in bond prices and concern that the dollar's recent weakness may lead overseas investors to avoid U.S. assets, traders said.

"The market can't catch a break," said Steven Zenker, portfolio manager at McCabe Capital Managers in King of Prussia, Pa.

The Dow Jones industrial average fell 16.66, to 3,697.75, driven by losses in Du Pont Co., Procter & Gamble Co. and Chevron Corp., as yields on the benchmark 30-year Treasury bond climbed as high as 7.39 percent from a morning low of almost 7.30 percent. Yields later closed at 7.35 percent.

Stocks slumped, following bonds lower, after a Commerce Department report said factory orders in March rose 1.1 percent, more than double the rate that economists forecast.

Investors are consumed by the "negative aspects of higher growth," Mr. Zenker said. Increased growth in the economy is associated with accelerating inflation, usually leading to still higher interest rates.

In the broader market, the Standard & Poor's 500 index dipped 1.30, to 451.73, as oil, household product, chemical, auto and electric utility stocks suffered the largest losses.

The Nasdaq combined composite index gained 0.93, to 740.30, as Microsoft Corp., Apple Computer Inc. and MCI Communications Corp. advanced.

Four stocks gained for every three that fell on the New York Stock Exchange, where 267.9 million shares changed hands.

Stocks were weakened by concern that interest rates will continue to rise, possibly as early as the next meeting of the Federal Reserve's policy-making panel on May 17, or in reaction to tomorrow's employment report.

The Labor Department report is expected to show companies added 190,000 jobs in April, according to economists surveyed by Bloomberg Business News. In March, the economy added 456,000 jobs, the largest increase since October 1987.

Yesterday's decline in stocks was "a prologue to further damage," said Michael Metz, chief market strategist at Oppenheimer & Co. Higher interest rates will slow the economy and curtail corporate earnings, especially among some large companies that are most sensitive to swings in the economy.

Among stocks in the Morgan Stanley Cyclical Index that fell the most yesterday were Knight-Ridder Inc., down $1.375, to $58.625; PPG Industries Inc., down $1.375, to $74.50; Eaton Corp., 87.5 cents lower, at $54; and Phelps Dodge Corp., 75 cents weaker, at $56.375.

Stocks are being hurt by concern about the recent weakness of the dollar, even after more than 10 central banks made the first concerted defense of the dollar in foreign-exchange markets since August 1992.

The currency's recent decline "is going to scare overseas investors," leading many to "avoid U.S. stocks," said Jim Benning, a trader at BT Brokerage, a unit of Bankers Trust New York Corp.

For overseas investors, the dollar's decline raises the chance of both foreign exchange and capital losses.

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