Stocks post biggest loss in two weeks

October 05, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks posted their biggest loss yesterday in two weeks as interest rates rose to a 2 1/2 -year high, clouding the outlook for economic growth and corporate profits next year.

A possible delay of congressional approval of a free-trade agreement, several rounds of computer-guided sell orders and a slump in technology issues also helped to pull stocks lower.

"The market is already reacting to another Fed rate increase," said Richard Ciardullo, head trader at Eagle Asset Management in St. Petersburg, Fla. Stocks were further damaged by institutional investors buying bonds and selling stocks as yields on 30-year Treasury bonds approach 8 percent, he said.

The Dow Jones industrial average lost 45.76 points, or 1.19 percent, to 3,801.13, as yields on 30-year Treasury bonds surged to 7.88 percent from 7.85 percent Monday. At one stage, the average dropped 52.49, triggering limits on computerized trading by the New York Stock Exchange. Sears, Roebuck & Co., General Motors Corp. and International Paper Co. led the decline.

Broader market measures were worse hit. The Standard & Poor's 500 index dropped 7.15, or 1.55 percent, to 454.59, as telephone, oil, semiconductor, bank and drug stocks declined.

The Nasdaq combined composite index slumped 13.58, or 1.79 percent, to 747.30, pounded by weaker technology stocks as investors grew concerned semiconductor makers' earnings will be damaged by lower Intel Corp. prices for its Pentium chips. Cyrix Corp., Intel, Microsoft Corp., Oracle Systems Corp. and Applied Materials Inc. all declined.

The Russell 2000 index of small-company stocks fell 3.43, or 1.35 percent, to 251.35.

Almost 17 stocks dropped for every five that rose on the New York Stock Exchange, where volume increased to 326.1 million shares from 269.1 million Monday.

Prospects for American exports, and for corporate profits next year and in 1996, dimmed as House speaker Thomas S. Foley said the House of Representatives' vote on the latest agreement under the General Agreement on Tariffs and Trade may be postponed until 1995.

"That would be a negative," and "another setback for the administration," said Mr. Ciardullo.

Question marks about the GATT agreement compounded concern that interest rates are headed higher, making fixed-income investments such as bonds more attractive than stocks. Bond yields surged yesterday as reports of robust auto sales sparked concern that the Fed will soon raise rates to dampen inflation.

Ford Motor Co. said September car sales rose 4 percent, while light truck sales jumped 12.2 percent.

Some investors are also concerned Friday's employment report will signal U.S. economic growth is getting out of hand, further driving up interest rates. Economists forecast the economy added 279,000 jobs in September, up from 179,000 in August.

A Commerce Department report yesterday that the government's index of leading economic indicators rose for the 13th straight month in August, and posted the largest gain in five months, served to confirm the economy's strength, traders said.

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