Stocks mixed as concern lingers on boost in rates

August 20, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks closed mixed yesterday as concern that higher interest rates will stymie corporate earnings offset a rally in technology stocks that was sparked by International Business Machines Corp.'s reaching a 20-month high.

"People are still trying to absorb this week's rate hikes," said Kenneth Ducey, director of trading at BT Brokerage. "But the technology group looks pretty strong."

The Dow Jones industrial average closed 0.32 lower, at 3,755.11, as declines in shares of J. P. Morgan & Co. and Coca-Cola Co. barely offset gains in IBM and General Electric Co. The average was 13.6 lower for the week.

IBM gained as much as $2.375, to $68.625, after David Wu, analyst at S. G. Warburg & Co., raised his target price for the computer maker's stock to a range of 80 to 85 within 12 months from 75. The stock closed at $68.125, up $1.875.

J. P. Morgan shares fell $1.125, to $63.25, after Ernst & Co., a New York brokerage, sold almost 500,000 shares below the market price, the firm said. Ernst declined to name the seller of the stock.

Among broader market indexes, the Standard & Poor 500 Index added 0.51, to 463.68. Gains in computer and electrical equipment manufacturers lead the advance. The index added 1.73 this week.

The Nasdaq Combined Composite Index rose 0.26, to 742.43, as a surge in Autodesk Inc. offset declines in shares of Cisco Systems Inc., Tele-Communications Inc. and Microsoft Corp. The Nasdaq rallied 10.81, or 1.5 percent, during the week.

Traders said stock prices were more volatile than usual because of yesterday's so-called double witching, when options on U.S. stock indexes and individual stocks expire simultaneously. The Dow industrials fell as much as 12 in early trading before turning higher at midday.

Stocks pared early losses as the dollar rebounded against the yen. The U.S. currency ended 0.07 yen higher, at 98.65 yen, after falling more than half a yen earlier.

The yield on the benchmark 30 1/4 -year Treasury bond responded to the dollar's slump by rising as high as 7.52 percent before falling to 7.49 percent, the same as Thursday's close. A falling dollar raises concern about inflation by making imported goods more expensive for U.S. consumers.

Trading was moderate, with 279.7 million shares changing hands by the close of the New York Stock Exchange. Eleven stocks rose for every nine that fell on the Big Board.

On Tuesday, the Federal Reserve raised the federal funds rate -- which banks charge each other for overnight loans -- to 4.75 percent from 4.25 percent. It also raised the discount rate, which it charges member banks for overnight loans, to 4.0 percent from 3.5 percent.

As a result, "we have probably seen the peak" of second-quarter earnings, said Elizabeth Mackay, portfolio strategist at Bear, Stearns & Co.

Technology stocks eked out modest gains as shares of IBM reached a one-year high. The Nasdaq index -- which is heavily weighted with technology stocks -- has risen eight out of the last 10 days.

"There is a fair amount of evidence that we are at the very beginning of a rally in technology stocks," said John Levinson, a portfolio manager at Lynch & Mayer Inc., which oversees $5.5 billion of assets.

Cisco Systems was the most active U.S. stock, followed by Mississippi Chemical Corp., Telefonos de Mexico's American depositary receipts, Microsoft Corp. and IBM.

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