Market starts strong but fades after sales report

March 22, 1995|By New York Times News Service

NEW YORK -- Breaking a three-session rally, traders bid stock prices sharply downward yesterday, after an unexpectedly strong retail sales report fanned fears of inflation. The same report drove down bond prices, despite a surprise strengthening in the dollar overseas.

In the absence of similar market-moving economic reports, the dollar may be the main driver of the stock and bond markets in advance of the policy-setting meeting of the Federal Reserve on Tuesday.

But the dollar may have only short-lived speculative reasons for rising, analysts said.

"When markets start trending, a lot of people who are not normally in the market start swooning and say, 'Oh, this will be easy money,' " said Graham Broyd, managing director for foreign exchange at Westdeutsche Landesbank Girozentrale. "We call these people amateurs."

The value of the dollar is important to the stock market because a weaker dollar penalizes foreign investors, who have become an increasingly important source of capital for the financial markets in the United States.

The Dow Jones industrial average, for example, has risen 6.21 percent so far this year in terms of dollars, but has fallen 3.08 percent in terms of German marks.

The plight of the dollar is "worrisome" for stocks, said Dirk van Dijk, equity strategist for C. H. Dean & Associates, which manages $4 billion in stocks and bonds.

At any rate, the Dow rose as much as 26 points, before falling and then plummeting at 2:55 p.m., when Johnson Redbook, a research firm, announced that the estimated March retail sales were six-tenths of 1 percent higher than the February sales. The projection was higher than the gain of one-tenth of 1 percent that traders had expected.

By the end of the day, the Dow had fallen 11.07 points, to 4,072.61. The broader Standard & Poor's 500-stock index fell 1.07 points, to 495.07, and the smaller-company Nasdaq composite index fell 0.71 point, to 809.78.

Bond prices also fell sharply, reacting to the possibility that the overheating economy could produce higher inflation. The yield on the benchmark 30-year Treasury bond rose to 7.44 percent from 7.39 percent. Yields and prices move in opposite directions.

The dollar, meanwhile, rose against most leading currencies yesterday.The dollar rose against the mark, helped by comments by central bankers in Germany and France.

The president of the Bundesbank, Hans Tietmeyer, said yesterday about German interest rates that, "I will take everything into account to see whether there is room for a small rate cut." A cut would make the mark less valuable and the dollar more valuable to international currency traders.

But the dollar, which ended slightly lower against the Japanese yen, remains fragile.

In late New York trading, the dollar was quoted at 89.21 yen, down from 89.31 late Monday. The dollar traded as low as 88.38 yen before recovering, breaching the previous nadir of 88.65 yen in Tokyo on Monday.

The dollar also was changing hands late in New York at 1.4122 marks, up from 1.4030.

Among the stocks moving the market yesterday, Kmart rose $1, to $13, adding $457 million to its market capitalization. The longtime chief executive of Kmart, Joseph E. Antonini, resigned yesterday.

FSI International, which makes equipment for building silicon wafers, rose $3.625, to $42.75, after the company reported a rise in its second-quarter earnings to 57 cents a share, from 23 cents a share in the corresponding period a year ago.

Ascend Communications, a maker of telecommunications equipment, rose $3.25, to $63.50, after several analysts raised their earnings estimates for 1995.

Norand Corp., a maker of computer equipment, fell $6.19, to $35.56, after analysts questioned whether new products were hurting profit margins. Casino Data Systems, a maker of gambling equipment, fell $3, to $12, after its management said first-quarter earnings would fall 5 cents to 10 cents a share below Wall Street's estimates of 27 cents a share.

The volume on the New York Stock Exchange was above normal, with 367.1 million shares changing hands, about 12 percent higher than the daily average of 329 million shares this year.

Of the 30 component stocks that make up the Dow industrials, 15 fell, led by IBM, which fell $1.25, to $82.25. Of the 500 component stocks that make up the S&P 500, 226 stocks fell, led by SBC Communications, formerly Southwestern Bell, which fell $1.50, to $41.75.

The most active stock, with 26.4 million shares traded, was RJR Nabisco, which rose 31.25 cents, to $6.125.

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