Stock market dives on interest rate fear Industrials plunge 114.88 points to 5,588

worst in four months

Strong job growth blamed

In first hour of trading, the Dow fell more than 80 points

July 06, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF Bloomberg Business News contributed to this article.

The bears came to work yesterday and the bulls vacationed as the stock market took one of its worst beatings in nearly four months on fears of rising inflation and higher interest rates.

The Dow Jones industrial average dropped 114.88 points, or 2 percent, to 5,588.14 in a trading day that was cut short by the July 4 holiday weekend.

"I've had better days," said Andrew M. Brooks, who heads equity trading with T. Rowe Price Associates Inc. "The tone from the get go was rather depressing."

The bond market struggled too, on the same fears, as the 30-year Treasury bond slipped 2.75 points, or $27.50 per $1,000 bond.

Its yield was boosted 25 basis points to 7.18 percent, the highest since June 12. It was the biggest one-day rise in the yield since March 8.

The stock market nose-dived at the opening bell when the Labor Department released June payroll data that showed a surprisingly strong increase in jobs.

The nation added 239,000 jobs for the month, well above the 157,000 forecast by economists. The report also showed that wages were up nine cents an hour, the biggest monthly increase in more than 30 years.

"Job growth was so strong that it knocked the wind out of the market," said Richard H. Fontaine, portfolio manager of Fontaine Global Growth, a mutual fund that invests primarily in mining stocks.

While more jobs is good news for the economy, the labor report shook the equities markets because many economists and analysts believe Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates to cool down the economy.

The Fed's Federal Open Market Committee, which sets interest rates, meets in August, and experts think there is a good chance rates will rise.

"What I suspect is there will be a great deal of volatility next week," said Charles A. Knott Jr., chief investment officer of Logan Capital Management Inc., a Philadelphia-based investment adviser with $250 million under management.

"I think the market will be very bumpy. You are going to get all kinds of differences of opinion [on interest rates] leading to a large amount of uncertainty," Knott said.

L The Standard & Poor's 500 index fared little better than the

Dow, falling 14.97 points, or 2.22 percent to 657.43 and the Nasdaq composite slipped 23.25 points to 1,158.35, or 1.97 percent.

The American Stock Exchange market value index fell to 574.33 points, down 5.32 points, or nearly 1 percent, and the New York Stock Exchange composite fell 7.13 points, down 1.9 percent to close at 353.24.

The Dow fell more than 80 points in the first hour of trading, staged an anemic rally and slipped to a low of 5,582.96 points. It opened the day at 5,703.02. The decline was the worst since March 8, when the Dow fell 171.24 points, its third worst drop ever.

Interest-sensitive bank, brokerage, finance company and insurance shares fell in the wake of the jobs report. Shares of Alex. Brown Inc. dropped $1.375 to $53.75, Mercantile Bankshares Corp. slipped 31.25 cents to $25.50, Merrill Lynch & Co., the nation's largest brokerage, fell $2.875 to $62.75, NationsBank Corp., was down $2.625 to $82, and commercial bank J. P. Morgan slid $2.875 to $84.125.

Morgan Stanley Group Inc., which reported record second- quarter earnings Monday, dived $2.875, or 5.7 percent, to $48.

Expectations that the Fed will clamp down on the economy held back shares of economically sensitive companies. Caterpillar Inc., a maker of bulldozers and other construction equipment, fell $1.75 to $68.375. Farm-equipment maker Case Corp. slipped $1 to $46.875.

Automakers also retreated amid concern higher rates will raise finance costs and slow new purchases.

Also, Bear, Stearns & Co. reiterated its "unattractive" rating on the industry. Ford Motor Co. fell 50 cents to $31.375, Chrysler Corp. dropped $2.125 to $57.75 and General Motors Corp. was down $2 to $40.125.

Utility shares plunged because their dividends, among the highest offered by stocks, looked less attractive next to bond coupons. Baltimore Gas And Electric, fell $1.125 to $27.125, Southern Co. retreated $1 to $23.125 and Duke Power Co. tumbled $1.875 to $48.875.

Among computer-related shares, Intel Corp., the No. 1 chip maker, lost $2.75 to $72.125. Cisco Systems Inc., a networking company, dropped $1.375 to $56.

Hewlett-Packard Co. shares tumbled $2 to $92.125 after Goldman, Sachs & Co. removed the maker of printers and personal computers from its "recommended list."

H-P shares have dropped 7.4 percent in the past week amid signs of sluggish growth among larger computer companies. Digital Equipment Corp., which warned of weaker-than-expected profits on Monday, slid 50 cents to $38.50, bringing its loss for the week to 15 percent.

T. Rowe Price's Brooks said that buyers wanted good deals and they weren't waiting for the final bell.

"If sellers really wanted to sell something today, they really had to push the price down," he said. "It was kind of a nasty day."

Brooks said the large drop left him uneasy.

"You wonder if this is just an exaggeration of an economic piece of news, or was it more significant than that," he said.

Dow's biggest losses

The Dow Jones industrial average had its seventh worst point drop yesterday, but was not even close to being among the largest percentage drops. In terms of points lost, here are the 10 worst days for the average, including the percentage change in value.

Date .. .... .. Points ....Close .... ..... Pct.

Oct. 19, 1987 ..508.00 ....1,738.74 .... ...22.6

Oct. 13, 1989 ..190.58 ....2,569.26 ...... .6.91

March 8, 1996 ..171.24 ....5,470.45 ....... 3.04

Oct. 25, 1987 ..156.83 ... 1,793.93 ........ 8.4

Jan. 8, 1988 .. 140.58 ... 1,911.31 ........ 6.9

Nov. 15, 1991 ..120.31 ....2,943.20 ....... 3.93

Yesterday ......114.88 ....5,588.14 ....... 2.01

Oct. 16, 1987 ..108.35 ... 2,246.74 ....... 4.60

Dec. 18, 1995 ..101.52 ....5,075.21 ...... 1.96

April 14, 1988 .101.46 ....2,005.64 ...... ..4.8

jTC Pub Date: 7/06/96

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