As interest rates moved sharply higher yesterday, the Dow Jones industrial average snapped a six-day winning streak and dropped 23.94 points to close at 3,742.41. Higher interest rates hurt stocks because (1) High borrowing costs constrict corporate profits and (2) Investors dump stocks and buy higher-yielding bonds, T-bills, CDs, etc.
BARGAIN COUNTER? Speaking of stocks, here are some blue-chip issues with their current approximate prices and (in parentheses) their most recent two-year highs (fractions dropped): Merck $30 ($56); BG&E $20 ($27); Philip Morris $53 ($85); Eastman Kodak $45 ($65); WMX Technologies (Waste Management) $25 ($46); Potomac Electric Power $20 ($29); Bristol-Myers Squibb $54 ($90); American Home Products (Anacin, Dristan, etc.) $56 ($84.)
WHAT DID BEST: Beginning in 1978, had you invested $10,000 in the following categories, here is what your investment would be worth today: Non-U.S. (foreign) stocks $105,000; S&P 500 Composite Index stocks $92,000; non-U.S. bonds $60,000; five-year U.S. Treasury bonds $50,000; three-month Treasury bills $34,000. (Figures from "Global Investing in the Modern Era," Chase Investment Performance Digest)
CALENDAR NOTES: On Monday, May 30, banks and stock exchanges will be closed for Memorial Day . . . On Father's Day, June 19, consider giving Dad a financial book (Peter Lynch's "Beating the Street" is available in paperback; I also like "The Intelligent Investor" by Benjamin Graham) and/or a subscription to a good financial magazine, such as Money, Forbes, Barron's or Kiplinger's Personal Finance Magazine . . . On Wednesday, June 1, Baltimore Security Analysts present Chad Dreier, president and CEO, Ryland Group, at the Hyatt Regency at noon . . . Sad calendar note: The longest day of the year (June 21) is only four weeks away and from then on, days begin to darken earlier.
HAPPY RETURNS: When BGE raised its dividend Friday, that increase marked the ninth year in the last decade that the local utility boosted its payout to stockholders. In 1984 the company paid $1.02 a share vs. the new rate of $1.52. Had you bought the stock 10 years ago at $10 a share, adjusted for a 2-for-1 split in 1985 and a 3-for-2 split in 1992, you would now be receiving a 15 percent yield on your 1984 investment, plus more than doubling your money.
MAY FLOWERS: Here are some well-known stocks from Quick & Reilly's new booklet, "200 NYSE Stocks That Boost Dividends Every Year": American Home Products, Archer-Daniels-Midland, Coca-Cola, Du Pont, General Mills, Heinz, Johnson & Johnson, Merck, Minnesota Mining & Mfg., Pepsico, Potomac Electric Power, Wal-Mart and Weis Markets . . . As promised, here is the toll-free number for the SteinRoe Young Investor Fund: 1-800-403-KIDS. The fund will invest 65 percent of its assets in "kiddie-related" companies. Details in Ticker May 19) . . . As of today, the "Dow 5" stocks are American Express, Eastman Kodak, Merck, Philip Morris and Woolworth. An investment 20 years ago of $10,000 in the "Dow 5" -- the five lowest-priced of the 10 highest-yielding Dow Jones stocks -- would now be worth $552,250. (No misprint.)
NOTES & QUOTES: "How should you realign your portfolio after the sharp correction? I would stay with the portfolio mix recommended here over the past several years -- namely, 55 percent in stocks and 45 percent in cash equivalents and bonds." (David Dreman, author, "The New Contrarian Investment Strategy" in Forbes, May 23 . . . Legg Mason will mail its 49-page "Real Estate Investment Trusts For Long-Term Income and Total Return" if you call 539-3400. ("Washington Real Estate Investment Trust is very well-positioned to add properties in a market which should over time once again be one of the country's strongest areas.")
FOR $1,000: "Looking for a reasonably safe place to invest for five years? Call Uncle Sam. Treasuries have some advantages over CDs. Interest is free from state and local income taxes. Also, a Treasury can easily be sold before maturity, although its price depends on what happens to interest from the time you invest. The minimum for five-year notes is a modest $1,000." (Kiplinger's Personal Finance Magazine, June). Ticker suggestion: Call the Federal Reserve Baltimore branch (576-3553) for details.
ENDPAPERS: "Defeating Age Bias With Perseverance and a Positive Attitude" in this week's National Business Employment Weekly (May 22-28) is worth reading. Excerpts: "If a potential employer isn't smart enough to understand what you bring to the equation, then you really don't want to work for that company . . . The good news is that sooner or later, you'll meet someone who can and will say 'Yes, you're exactly what we need.' The trick is getting to that point quickly, and as any good salesman will attest, you have to listen to 'no' many times before you get to 'yes.' The sooner you start generating 'no's,' the better . . . Age is relevant, but it's also relative. As someone's 87-year-old mother used to say, 'Oh, to be 80 again.' . . . Although age isn't a laughing matter, it does help to smile a great deal. President Reagan did that well."