Financial shares pull stocks down

November 19, 1994|By Bloomberg Business News

NEW YORK -- U.S. stocks dropped yesterday for a second day amid concern that rising interest rates will hinder the economy and slow corporate earnings growth.

Financial stocks were among the worst hit as investors anticipated that higher rates will hurt their earnings. PNC Bank Corp., Bankers Trust New York Corp. and Mellon Bank Corp. all fell to 52-week lows, leading the decline.

"You're seeing the tide going out in financial stocks," said Cummins Catherwood, managing director at Rutherford, Brown & Catherwood Inc. in Philadelphia.

The Dow Jones industrial average closed down 12.79, at 3,815.26, after falling as much as 43.07 points amid the simultaneous expiration of options on stock indexes and individual stocks. The decline was paced by losses in Goodyear Tire & Rubber Co., United Technologies Corp. and AlliedSignal Inc.

The Morgan Stanley cyclical index of stocks sensitive to swings in the economy fell 3.34, to 286.11, after falling as low as 284.93 -- its lowest since April 21. Shares of Dow Chemical Co., Ingersoll-Rand Co. and Bethlehem Steel Corp. led the slump.

The Standard & Poor's 500 index slid 2.10, to 461.47, after falling as much as 3.32. The Nasdaq composite index dropped 1.17, to 764.67, after declining as much as 2.89. The drop reflected falling prices for U S Healthcare Inc., DSC Communications Corp., Nextel Communications Inc. and Sybase Inc.

The Dow Jones utilities average dropped 1.25, to 174.47, its lowest since Aug. 15, 1988. The Wilshire 5000 fell 18.98, to 4,568.23, and the Russell 2000 index of small stocks lost 1.0, to 248.58.

Two stocks fell for every one that rose on the New York Stock Exchange, where 362.7 million shares changed hands, up from 323.2 million Thursday.

Yesterday's options expiration contributed to the higher volume and the price swings, analysts said. Computer-guided "sell" orders clipped about 23 points off the Dow industrials at one point, said Jeffrey Rubin, analyst at Birinyi Associates Inc. in Greenwich, Conn.

The seesawing in stock prices "is an indication of how nervous people are right now as interest rates move higher," said James Solloway, research director at Argus Research Inc.

The two-day slump in stocks came after the Federal Reserve Board on Tuesday raised the federal funds rate for overnight loans among banks to 5.50 percent from 4.75 percent. It also raised the discount rate, which the Fed charges on overnight loans to member banks, to 4.75 percent from 4 percent.

Yesterday, bond yields rose again, bringing the yield on the benchmark 30 1/4 -year Treasury as high as 8.17 percent, from Thursday's 8.13 percent, after the Commerce Department said September's trade deficit widened almost 5 percent. The long bond's yield ended at 8.13 percent.

Part of investors' concern is that higher interest rates make money-market funds and other less-risky investments more attractive than stocks, analysts said.

Investors "are looking at rates of about 8.15 percent, [so] you've got to have people taking a look at that and taking money out of equities," David Butler, head of equity trading at Kemper Financial Services in Chicago.

Most bank stocks dropped for a third day amid perceptions that rising interest rates will squeeze the profits banks earn on the spread between borrowing and lending rates and reduce the value of their securities investments.

Citicorp fell 62.5 cents, to $43.375; J. P. Morgan eased 62.5 cents, to $58.125; Chase Manhattan Corp. lost 50 cents, to $35.50; First Chicago Corp. dropped $1, to $47.25; and Corestates Financial Corp. declined 37.5 cents, to $25.25.

Sports Authority's shares closed at $24. The sporting-goods chain made an initial public offering of 12.3 million shares priced at $19 each.

Synergen Inc. surged $3.656, to $9.031. Amgen Inc. agreed to buy Synergen Inc. for $9.25 a share, sparking a rally in other biotech stocks.

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