Stocks drop on rate-increase fears

October 22, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks skidded yesterday for a second day as lingering concern about another interest-rate increase by the Federal Reserve quashed optimism about stronger than expected third-quarter earnings.

"Everyone's accepted the fact the Fed is going to increase the discount rate by at least 50 basis points at its November meeting," said Gil Knight, who helps manage $2 billion in equities at ASB Capital Management Inc.

Adding to investors' worries about the direction of the stock market was mounting evidence that money has been flowing out of stock mutual funds.

"If individuals are backing away from funds now, the implications for the stock market certainly aren't good," said Jim Rogers, an independent investor who helped George Soros found his Quantum Fund in 1970.

The Dow Jones industrial average fell 19.85, to 3,891.30, as shares of General Motors Corp., General Electric Co. and Aluminum Co. of America declined.

The average fell 19.17 points this week.

The yield on the government's benchmark 30 1/4 -year bond ended at 7.98 percent, down from 7.99 percent Thursday.

Among broader market measures, the Standard & Poor's 500 Index fell 1.96, to 464.89, led lower by shares of electrical equipment makers, automakers and regional banks. The index fell 4.21 points during the week.

The Nasdaq composite index slipped 2.86, to 765.38. MCI Communications Corp., Tele-Communications Inc. and Microsoft Corp. led the index lower. The index fell 1.70 this week.

The Wilshire index of 5,000 New York, Nasdaq and American stock exchange-traded stocks fell 17.09, to 4,610.39; and the Russell 2000 Index of small-capitalization stocks fell 0.75, to 252.86.

Trading was active, with 309 million shares changing hands by the close of the New York Stock Exchange.

About three stocks fell for every two that rose on the Big Board.

Until Thursday, stocks had gained throughout the week, as companies reported better-than-expected earnings.

But earnings optimism further evaporated after General Motors Corp. shares fell $1.75, to $41.375, following a $3.75 plunge Thursday.

"GM dashed everybody's hopes" about earnings, said Christopher Willox, a trader at BT Brokerage.

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