Stocks change little Fed move awaited

May 06, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks posted small gains in slow trading yesterday amid concern the Federal Reserve may use today's employment report for April as a reason to raise interest rates.

Insurance, oil and retail oil companies rallied somewhat as bonds and the dollar strengthened.

Investors were unwilling to move prices very much before today's Labor Department report.

"I feel a little bit like a deer caught in the headlight," said Cummins Catherwood, managing director at Rutherford, Brown & Catherwood in Philadelphia, which manages about $270 million.

"There's a chance of a discount rate increase" from the Federal Reserve after the jobs report or in the weeks before the May 17 meeting of the Fed's policy-making council, he said.

"I smell another rate increase, and I don't want to look like the vil

lage idiot when it comes."

The Dow Jones industrial average fell 1.78, to 3,695.97, as gains in Sears, Roebuck & Co. and Du Pont Co. offset losses in General Motors Corp. and Philip Morris Cos.

The Standard & Poor's 500 stock index dropped 0.34, to 451.38, as auto, electric utility, beverage, tobacco and household product stocks slid. The Nasdaq combined composite index added 0.25, to 740.55.

The number of declining stocks on the New York Stock Exchange narrowly outpaced advancers, 1,088 to 1,011. Volume slowed to 255.7 million shares from 267.9 million Wednesday.

Many investors "are speculating that the Fed will tighten," and use the jobs report "as an excuse" to raise the rate on overnight bank loans to 4 percent from 3.75 percent, said Todd Clark, a senior trader at Mabon Securities. That point could be reached if the employment report shows the economy adding 200,000 to 225,000 jobs last month.

"If it's not significantly above 200,000, [the Fed] will have trouble justifying the rate increase," Mr. Clark said. "A lot of people think they're going to do it, but the fact the stock and bond market held together today in the face of that is pretty calming."

In March, the economy added 456,000 jobs, the largest increase since October 1987. That news sent bonds into a tailspin, driving up interest rates, on Good Friday.

Yields on the benchmark 30-year Treasury dipped yesterday to 7.33 percent from 7.34 percent after the Labor Department said unemployment claims rose 17,000 last week to 350,000, dampening concern somewhat that the economy will overheat and drive up inflation.

Stocks also were buoyed by a stronger dollar and rallies in major overseas stock markets. The dollar rose the day after 16 central banks made the first concerted defense of the currency on foreign-exchange markets since August 1992.

For overseas investors, the dollar's two-day advance lowers the chance of foreign-exchange losses on U.S. investments. A stronger dollar also cuts domestic prices of imported raw materials and finished goods, reducing concern that U.S. inflation will accelerate.

A handful of retail stocks gained after Sears said sales at U.S. stores open at least a year jumped 12.3 percent in April, spurring a 14 percent rise in revenue.

Sears surged $1.25, to $48.625; Wal-Mart Stores Inc., which said same-store sales rose 8 percent last month, gained 25 cents, to $25.25; and Federated Department Stores, which said same-store sales grew 1.2 percent, added 50 cents, to $21.75.

Oil stocks got a boost as Texas crude for delivery next month jumped 43 cents to $17.29 a barrel amid reports of rising global demand. Royal Dutch Petroleum rose $2.125, to $107.875; Shell Transport & Trading gained $1.25, to $64.875; Texaco Inc. added 62.5 cents, to $63.75; and British Petroleum's American depositary receipts, each of which represents 12 common shares, climbed $2.59375, to $71.46875.

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