Stocks give up gain as bonds retreat

November 11, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks dropped yesterday as interest rates rose and technology issues fell in reaction to a slowdown in semiconductor orders.

Stocks gained early in the day, following bonds, amid suggestions that inflation is under control and a rally by Sears, Roebuck & Co. Later, stocks fell as bonds retreated and two rounds of computer-guided sell orders knocked share prices lower.

The Dow Jones industrial average seesawed in reaction to yields on 30-year Treasury bonds, which dropped as low as 8.02 percent before climbing to end at 8.15 percent, up from 8.11 percent Wednesday.

Stock market investors, concerned about rising rates making stocks less attractive than bonds, "have been on an inflation roller coaster for quite a while," said Robert Walberg, equity analyst at MMS International in Chicago.

The Dow industrials fell 9.76, to 3,821.99, snapping three straight gains, after earlier rising 26.91. International Business Machines Corp., United Technologies Corp. and Eastman Kodak Co. paced the decline.

The Standard & Poor's 500 index fell for a second day, dropping 1.07, to 464.35, hurt by oil, computer, telephone, semiconductor and electric utility stocks. The Nasdaq composite index dropped 2.87, to 764.38, as Cisco Systems Inc., Nordstrom Inc., Intel Corp. and Oracle Systems Corp. declined.

The Russell 2000 index of small stock dropped 1.1, to 250.59, while the Wilshire 5000 index fell 12.47, to 4,597.71.

More than 13 stocks dropped for every eight that rose on the New York Stock Exchange, where trading slowed to 282 million shares from 337.8 million Wednesday.

Technology stocks slumped as semiconductor orders weakened last month.

IBM fell $1.875, to $72.125; Texas Instruments Inc. dropped $2, to $76.75; Micron Technology Inc. declined $1.25, to $39.625; National Semiconductor Corp. eased 37.5 cents, to $17.625; Xilinx Inc. slipped 50 cents, to $57.50; and Applied Materials Inc. fell $1.0625, to $49.625.

The Semiconductor Industry Association's book-to-bill ratio fell to the first time it dropped below 1.0 in 10 months, from September's revised 1.02. The ratio means that for every $100 in shipments last month, semiconductor makers got $97 in new orders.

"This was a surprisingly terrible book-to-bill ratio," said Stuart Johnson of Wertheim Schroder. "It would suggest that demand is weakening."

Stocks got an early lift after the Labor Department said producer prices fell 0.5 percent in October, the same as in September and beneath economists' forecast of a 0.1 percent rise.

The October producer price report showed inflation under control, and may keep the Fed from raising overnight lending rates by more than a half-point after a policy meeting next week, traders said.

In recent weeks, some investors became concerned that the next rate rise might total three-quarters of a point or even a full point.

"The Fed doesn't want to raise rates any more than it has to" to cool the economy, said James Melcher, a money manager with assets of about $100 million at Balestra Capital. "And the producer price index reveals there is not a lot of inflation."

Overnight lending rates among banks have risen five times this year, to 4.75 percent, up from 3 percent before Feb. 4. As rates rise, bonds become more attractive in relation to stocks, which are perceived as more risky.

Sears jumped $2.75, to $51.625, a five-month high. The Chicago retailer announced plans to give shareholders its remaining 80.1 percent stake in Allstate Corp. in one of the largest spinoffs in U.S. history. Sears also said Chairman and Chief Executive Officer Edward Brennan will retire after the $8.7 billion spinoff.

British Telecommunications PLC American depositary receipts, each representing 10 common shares, dropped $1, to $61.125. The company reported a 4.2 percent decline in fiscal second-quarter pretax profit to $1.15 billion.

Telefonos de Mexico SA American depositary receipts, each representing 20 series L shares, fell $4.50, to $51.50.

The Mexican telecommunications company was lowered to "moderate outperformer" from "buy" at Goldman, Sachs & Co.

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