Stocks Fall on Concern Bond Yields at 6-Mo. Highs Will Attract Investors
U.S. Stocks Fall on Concern Bond Yields Will Attract Investors
New York, Feb. 25 (Bloomberg) -- U.S. stocks fell for a
second day on concern that bond yields at six-month highs are
making stocks less attractive. Shares partially rebounded after
reaching levels some investors found cheap.
''Bonds become more competitive with stocks as yields
rise,'' said Gil Knight, a money manager who helps oversee $11
billion in assets at Allied Investment Advisors in Baltimore.
''We are over 5 1/2 percent, and bonds are beginning to sound
attractive again.''
Intel Corp. and Dell Computer Corp. led decliners on concern
that revenue growth will stagnate this year as companies slash
prices to win sales.
The Dow Jones Industrial Average dropped 33.33, or 0.4
percent, to 9366.34, battling back from a 166-point slump.
''After a while, stocks looked cheap to some people,'' said
Courtney Smith, chief investment officer for Orbitex Management
Inc. which oversees $1.2 billion. Smith was waiting for the S&P
500 to drop to 1225.0 before ''allocating cash.'' The index
rebounded after falling to 1225.01.
The Standard & Poor's 500 Index lost 8.39, or 0.7 percent,
to 1245.02. The Nasdaq Composite Index fell 12.56, or 0.5
percent, to 2326.82. Two stocks fell for every one that rose on
the New York Stock Exchange.
Yesterday, the Dow average fell 144. ''We were overdone on a
two-day basis, and buyers came back in,'' said Arthur Hogan,
chief market analyst for Jefferies & Co. in Boston. ''The bond
market can't drive the equity market for more than a few days.''
Still, stocks may have more room to fall, said Knight.
''We're in a choppy market, and we may see a correction of
another 5 to 7 percent from here.''
Yields Jump
The yield on the 30-year bond rose 11 basis points to
5.62 percent, the highest level since Aug. 13, after reports on
jobless claims and factory orders showed unexpected strength in
the economy. The yield has risen 27 basis points since Federal
Reserve Chairman Alan Greenspan said the central bank has to
evaluate whether its three interest-rate cuts last year were
''appropriate'' now that world financial markets have stabilized.
Federal Reserve Governor Laurence Meyer reiterated
Greenspan's point today, suggesting that U.S. interest rates may
need to be increased to keep inflation from accelerating after
three cuts in the overnight bank loan rate last year. Keeping the
rate where it is now would ''run a substantial risk of unleashing
inflation pressures that would be disruptive to reverse,'' Meyer
said in a speech at the annual dinner of the Society of Business
Economists in London.
S&P 500 futures, which had partly rebounded, fell again
after Meyers' remarks were published at 4 p.m., when U.S.
exchanges close. The contract fell 11.80 to 1241.50.
Home resales set a record last month, and January factory
orders for big-ticket goods such as aircraft, autos and
electronics rose 3.9 percent, the biggest gain in a year.
Analysts expected a 0.2 percent decline in orders. First-time
claims for unemployment benefits unexpectedly fell.
PC Stocks
Software, semiconductor and computer stocks fell, leading
the S&P 500's decline. Merrill Lynch & Co. analyst Steven
Milunovich said long-term growth rates may prove disappointing
because of falling prices, more competition and the advent of new
''information appliances'' that will supplant PCs to some extent.
Milunovich said PC stocks ''should be fine in the near term.''
Intel Corp., the biggest maker of chips for PCs, fell 2 5/8
to 127 3/4.
Dell, the biggest direct seller of PCs, lost 1 1/2 to 81 3/4
and was the most active stock in U.S. trading. Compaq Computer
Corp., the largest PC maker, declined 1 1/16 to 41 3/8.
BMC Software Inc. fell 5 7/16 to 41 9/16 after the maker of
corporate software restated earnings and revenue for fiscal year
1998 to include results from a company it bought last year.
International Business Machines Corp. closed unchanged at
173 3/4, recovering from a 4 7/16-point decline. Investors have
been buying more IBM shares in rallies than they have been
selling in declines, according to Bloomberg Analytics money flow
analysis, signaling that the shares could rise in coming months.
Amazon
Amazon.com Inc. soared 14 1/16 to 125 after Keith Benjamin,
an analyst at BancBoston Robertson Stephens, upgraded the online
bookseller to a ''strong buy'' from ''buy'' after the company
announced yesterday that it holds a 46 percent minority stake in
Drugstore.com.
''The growth potential for online sales of consumable
products is tremendous,'' said Benjamin.
Some 277 stocks fell to 52-week lows, while 84 rose to
highs.
Morgan Stanley Dean Witter & Co.'s chief U.S. investment
strategist, Byron Wien, said stocks are overvalued by 20 percent
and advised clients to reduce their exposure to stocks, a trader
at the firm said. Wien cut the stock portion of his model
portfolio to 85 percent from 90 percent, and raised the cash
portion to 15 percent from 10 percent.
Charles Crane, chief investment strategist at Key Asset
Management, which oversees $62 billion, is advising clients to
consider buying five- and 10-year notes. ''They don't lose much
on the yield, but have less volatility'' than 30-year bonds, he
said.
Not everyone was convinced that bonds are the best place to
put their money.
''I do not see any particular need to go to bonds,'' said
Richard Caro, a portfolio manager at Summit Bank in New Jersey,
which oversees $8 billion in assets. ''I'm a long-term investor,
and stocks will always outperform bonds.''
Regional Telephone Companies
Regional phone companies fell after federal regulators voted
to release a report showing that large local U.S. phone companies
can't account for more than $5 billion of equipment on their
books, from ladders to computer switches. The report comes as the
companies attempt to win favorable treatment from regulators,
including permission to enter the $90 billion U.S. long-distance
market.
The Federal Communications Commission report could provide
ammunition for long-distance companies that contend the local
companies overcharge them to connect to their networks. The
charges are based partly on equipment costs.
Ameritech Corp. fell 5/8 to 64 7/8. Bell Atlantic fell
7/8 to 57 11/16. BellSouth Corp. fell 1 9/16 to 46, SBC
Communications Inc. fell 1 3/8 to 52 5/8 and US West Inc. fell
1 3/16 to 55 1/8.
Movers
Novell Inc., the No. 2 maker of networking software, closed
1 7/8 higher at 20 7/8. After the market closed, the company
reported earnings of 8 cents a share, a penny short of analysts'
average estimate. Novell fell 7/8 to 20 in trading after the
close of exchanges.
Eastman Kodak Co. fell 2 1/16 to 66 7/8, and was the biggest
decliner in the Dow average. Kodak may receive lower prices for
its film, according to Rebecca Runkle, an analyst with Morgan
Stanley. Runkle said Kodak's digital camera and processing
initiatives may not produce results for some time.
DaimlerChrysler AG fell 4 15/16 to 96. While Europe's
largest industrial company reported better-than-expected
earnings, analysts are expecting slower sales following
Volkswagen AG's warning Monday that profit growth would be
difficult this year.
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