Dow sheds 20 points after rising to a record Fed's rate decision, AT&T's earnings lag major factors in session

September 25, 1996|By BLOOMBERG BUSINESS NEWS

NEW YORK -- U.S. stocks briefly rose to records yesterday after the Federal Reserve kept interest rates unchanged, then closed mixed.

With the next Fed meeting on interest rate policy not scheduled until Nov. 13, a week after the presidential election, investors said they would now focus again on corporate profits. Yesterday's decision might help spur earnings by keeping borrowing costs low.

The Dow Jones industrial average began the day by falling 31.07, was little changed just before the Fed decision, jumped 34.77 to an all-time high of 5,929.51 after the Fed kept overnight lending rates steady at 5.25 percent, then sank as much as 42.16 in the final hour. It closed 20.71 lower at 5,874.03.

AT&T Corp., down $5.625 to $51.625 after saying earnings would be unexpectedly weak, blocked the Dow from rising. AT&T single-handedly sliced 17 points from the Dow.

In the broader stock market, the Standard & Poor's 500 index slipped 0.87 to 685.61 after rising 4.40 to a record 690.88. Semiconductor and computer issues advanced the most.

Advancing stocks outnumbered decliners on the New York Stock Exchange by 1,238 to 1,081. About 460 million shares changed hands.

The Nasdaq composite index rose 3.80 to 1,215.27; the Russell 2000 index of small-company shares rose 1.07 to 342.66; and the Wilshire 5000 index dipped 0.38 to 6723.49.

"This is very, very typical skittish trading behavior in the wake of an important Fed announcement," said Philip Orlando, chief investment officer at Value Line Asset Management. "You usually have an initial sigh of relief, a rally on the decision, and then other people who are disappointed by the news."

The Fed left rates unchanged because inflation is in check and the economy is slowing, and a slowing economy doesn't bode well for corporate profits, some money managers said.

"We're looking for an economic slowdown, and that is not the environment you need for economically sensitive stocks to do well," Orlando said, explaining why he's avoiding paper, NTC chemical, steel and other so-called "cyclical" companies.

Overall, steady interest rates are good for stocks because they let companies and consumers plan their borrowing needs better.

Rising rates, on the other hand, typically send the market lower. The last time the Fed began raising interest rates to cool economic growth and keep a lid on inflation was February 1994. On Feb. 4 that year, the Dow industrials fell 96.24, or 2.4 percent, to 3,871.42 when the central bank raised rates. The Fed raised interest rates seven more times until it finished in February 1995, and the Dow fell about 3 percent during that yearlong span.

So far this year, the 30-stock Dow industrial average is ahead 14.8 percent. It closed at a record 5,894.74 Monday.

Yesterday, stock market investors were buoyed by falling yields on benchmark 30-year Treasury bonds. They dipped to 6.98 percent from 7.02 percent yesterday.

Semiconductor stocks posted their biggest one-day advance since late July, the Philadelphia semiconductor index climbing 11.01, or 6.1 percent, to 191.7. Speculation mounted that computer chip makers might start seeing higher prices for some types of chips because of robust demand for personal computers.

In addition, Texas Instruments Inc., ahead $5.625 to $57.375, was raised to "buy" from "hold" at Montgomery Securities.

Intel Corp., the country's largest chip manufacturer and the maker of the next-generation P6 semiconductor, rose 75 cents to $96.50; Cirrus Logic Inc. soared $1.375, or almost 9 percent, to $17; KLA Instruments Corp. spurted $1.50 to $22.50; and LAM Research Corp. vaulted $2.875 to $26.25.

Novellus Systems Inc. surged $4.375 to $42.875, Micron Technology Inc. climbed $3.50 to $31.50 and Applied Materials Inc. advanced $1.75 to $27.75.

Pub Date: 9/25/96

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