2-day rally stalls as Dow slips 1.01

November 30, 1994|By Bloomberg Business News

NEW YORK -- A two-day rally in U.S. stocks stalled yesterday after an unexpectedly strong consumer confidence report raised concern that inflation and interest rates will head higher, traders said.

The report offset optimism about holiday sales and fourth-quarter corporate earnings and focused attention on the chance that rising rates will keep investors away from stocks. Consumer confidence rose 12.2 points in November, to 101.3, its highest point since mid-1990, a business group said.

"That number was off the map," said Joseph DeMarco, managing director of equity trading at HSBC Asset Management, a $4.5 billion unit of Hongkong & Shanghai Bank. "No one even came close to predicting that."

The Dow Jones industrial average fell 1.01, to 3,738.55, boosted by a late round of computer-guided "buy" orders, after falling as much as 21.53. Losses in Caterpillar Inc., General Electric Co. and Walt Disney Co. paced the average, which had gained 64.93, or 1.77 percent, in the past two days after dropping 170.57, or 4.4 percent, in the previous five sessions.

The Standard & Poor's 500 index gained 1.01, to 455.17, its third straight gain, after falling as much as 2.02. The index gained 1.87 Monday and 2.36 on Friday. Technology, communication, drug, oil and bank stocks led yesterday's advance.

The Nasdaq composite index surged for a third day, jumping 5.75, to 751.48, after gaining 3.21 Monday and 4.84 Friday. Among the largest issues, Oracle Systems Corp., Novell Inc., Microsoft Corp., Amgen Inc. and Tele-Communications Inc. all rose.

The number of advancing common stocks outnumbered declining issues by about 11-to-10 on the New York Stock Exchange, as volume grew to 286.6 million shares from 265 million Monday.

Yields on benchmark 30-year Treasury bonds climbed to 8.03 percent, from 7.98 percent Monday, as prices, which move in the opposite direction of yields, dropped a half-point.

The consumer confidence report by the Conference Board "raised the specter of higher rates yet again," Mr. DeMarco said, after "there had been an acceptance of the fact the Fed would put another rate increase on the back burner until at least the first or second month of the new year."

The surge in confidence "got people thinking about the possibility of another rate increase sooner rather than later," said Mr. DeMarco.

The Federal Reserve has already raised rates six times this year to keep inflation from accelerating as the economy expands, most recently on Nov. 15, when it lifted overnight lending rates a larger-than-expected 3/4 point.

The Fed next meets to set policy on Dec. 20.

Higher rates make fixed-income investments relatively more attractive than stocks and add to corporate and consumer borrowing costs, crimping companies' profits.

If other economic indicators later this week also show rapid growth,

that could add to concern that another rate increase is imminent, traders said.

Today, the government reports revised figures on third-quarter gross domestic product.

On Friday, it issues November employment figures.

To be sure, a growing perception that Congress will pass a world trade agreement this week helped to keep stock prices from falling farther through most of the day, said Alan Ackerman, market strategist at Reich & Co.

Clinton administration officials on Monday predicted that the special session of Congress under way this week will approve the latest round of the General Agreement on Tariffs and Trade.

MCI Communications Corp., RJR Nabisco Holding Corp., Novell Inc., Intel Corp. and Federated Department Stores were the most active stocks in composite trading.

MCI tumbled $1.50, to $19. The long-distance phone company was lowered to a medium-term "neutral" from "buy" at Merrill Lynch & Co. amid concern that growth is slower than expected and MCI is losing market share to competitors.

Among other telephone companies, AT&T Corp. eased 25 cents, to $49.25.

Federated jumped $1, to $20.75. The parent of Abraham & Straus, Bloomingdale's and other retail chains saw sales rise 6.2 percent in November in stores open more than one year.

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