U.S. Stocks Fall as Fed Governor Fuels Interest-Rate Concern
New York, Sept. 8 (Bloomberg) -- U.S. stocks fell after
Federal Reserve Governor Laurence Meyer said inflation may pick
up even if the economy slows, stoking concern the Fed may raise
interest rates for a third time this year.
''Meyer's presentation just added fuel to the fire and
substantiated people's fears that the Fed will'' raise rates, and
that's bad for stocks, said Eric Barden, a money manager at Texas-
based First Austin Capital Management, which oversees $100
million.
The Dow Jones Industrial Average closed 2.21 higher at
11,036.34, after rising 83 and falling 67. Oil stocks such as
Exxon Corp. propped the average up. The Standard & Poor's 500
Index dropped 6.30, or 0.5 percent, to 1344.15, led by Microsoft
Corp. and Intel Corp. The Nasdaq Composite Index slid 28.52, or 1
percent, to 2808.74. Three stocks fell for every two that rose on
the New York Stock Exchange.
Meyer, who spoke in Philadelphia, said wage pressures ''may
be building.'' Some investors had been hoping that the rate
increases in June and August would slow the economy enough to
persuade the Fed that inflation isn't a threat.
Stocks alternated between gains and losses throughout the
session. Earlier, they rose after Federal Reserve Chairman Alan
Greenspan made no remarks about the direction of interest rates
during a speech in Michigan. The market fell at the open after an
unexpected interest-rate increase by the U.K.'s central bank
raised concern that the Fed may not be finished raising rates.
The next meeting of Fed policy-makers is Oct. 5.
Optimistic remarks from Goldman Sachs & Co. chief investment
strategist Abby Joseph Cohen helped limit the market's losses.
Higher interest rates usually cause stocks to fall because
they reduce the amount investors are willing to pay for the
present value of future earnings. Since the first rate increase,
on June 30, the S&P 500 has lost 2.1 percent. The Dow average has
risen 0.9 percent and the Nasdaq has gained 4.6 percent.
Microsoft fell 2 to 92 1/4 and Intel lost 1 11/16 to 85
15/16, dragged down from gains with the rest of the market.
Oil
Oil stocks rose on higher crude prices.
''Oil prices have been strong, and the expectation is that
will continue,'' said Henry Cavanna, who helps oversee $320
billion at J.P. Morgan & Co. ''If (crude) demand picks up through
the winter, it augurs well for the stocks.'' Exxon rose 1 11/16
to 81 3/16, Mobil Corp. rose 2 3/16 to 105 3/4 and Chevron Corp.
gained 1 1/4 to 94 7/16.
Crude rose 5 cents to $22.66 a barrel on the New York
Mercantile Exchange today, the highest closing price since
October 1997. The American Petroleum Institute was expected to
report later today that inventories fell.
Bonds were little changed after the Fed took steps to ensure
there will be enough money in the banking system to offset any
computer problems that may arise because of the year 2000.
Some investors are concerned credit markets might freeze up
at the end of the year as investors refrain from trading to see
whether computers read the year 2000 as 1900 and shut down.
Cohen Speaks
Goldman Sachs' Cohen raised her yearend forecast for the S&P
500 Index to 1385 from 1350. That would be a 2.6 percent rise
from yesterday's close.
Cohen, in a report to clients, also said the S&P 500 could
reach 1450 within 12 months. Her previous forecast was 1385.
Inflation is modest, and much of the rise in bond yields
that's likely has already occurred, Cohen said. The yield on the
30-year U.S. Treasury bond has risen from 5.1 percent at the
beginning of the year to 6.05 percent now.
Cohen said her targets could be undermined by a
''tightening'' of U.S. labor markets, which could cause interest
rates to rise. She also cited risks from economic problems
abroad, including deflation in China, weak demand in Japan, and
persistent unemployment in Europe.
Some 779 million shares traded on the Big Board, more than
the three-month daily average of 709 million.
Seagate
The Amex Disk Drive Index slipped for a second day, led by
Seagate Technology Inc., which fell 1 7/8 to 33 1/8. The Index
has lost 3.2 percent in the last two sessions.
Jean Orr, a Nutmeg Securities analyst who rates Seagate
''hold,'' attributed the drop in disk-drive makers to concern
companies will curtail personal computer purchases in the fourth
quarter because of year problems related to the year 2000.
Global Crossing Ltd., a two-year-old company that's building
a worldwide undersea fiber network, rose 5 1/4 to 25 9/16 and was
the most-active stock. The company will sell 7 percent of its
trans-Pacific cable to Microsoft Corp. and Softbank Corp. for
$350 million in cash to expand in Asia.
Ingram Micro Inc., the world's biggest wholesale computer
distributor, fell 6 to 13 5/16 after it said it's seeking a
replacement for Chief Executive Jerre Stead amid a warning that
profit for its fiscal third quarter won't meet analyst forecasts.
Ingram expects to have net income of 10 cents to 14 cents a
share in the quarter ending Oct. 2. The average forecast from
analysts surveyed by First Call/Thomson Financial was 41 cents.
Also Wednesday afternoon, U.S. Treasury Secretary Lawrence Summers reiterated that a strong dollar is in the best interests of the United States
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Upbeat Abby
September 8, 1999
By Stacey L. Bradford
ON WEDNESDAY morning, Goldman Sachs' perennial bull Abby Joseph Cohen raised her price targets for both the S&P 500 and the Dow Jones Industrials. She now expects the S&P 500 to end 1999 trading at 1385 (up from 1350) and the DJIA to hit 11500 (up from 10300). Her 12-month rolling forecast for the S&P 500 is 1450.
Why the upward revision? Cohen points to three factors: stronger-than-expected earnings growth, modest inflation and her belief that much of the rise in bond yields has already occurred. But it's earnings growth that she says weighed most heavily upon her decision.
Cohen says earnings for the S&P 500 exceeded her forecast during the first part of the year, and she expects the strength to continue. "Analysis of the results by economic sector suggests broad-based improvement that is likely to persist for several quarters," Cohen writes, and it's that durability of profits, rather than just rapid growth, that should earn higher stock prices.
So what sectors does Cohen like for the rest of the year? She points to financial-services firms. "We now see opportunities among sectors whose performance has lagged due to investor concerns (which we do not share) that economic growth may soon trigger troubling inflation and notable interest rate gains," she writes. She also likes U.S. technology companies that continue to deliver innovative products and services in computing and communications, not to mention above-average earnings growth. |
