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Interest-Rate-Sensitive Stocks Lead Market Slide

Wall Street: Broad sell-off, triggered by jitters over Fed's intentions, also hits foreign markets. Banks, home builders tumble. Nasdaq falls 2.6%.

April 28, 1998|From Times Staff and Wire Reports

Highflying financial-related stocks, including banks, paced Wall Street's sharp slide Monday, as bond yields surged on fears that the Federal Reserve Board may tighten credit soon.

The Nasdaq market of mostly smaller stocks--which has led the bull market's continuing advance in recent weeks--also suffered a heavy hit, losing 48.65 points, or 2.6%, to 1,820.31.

The Dow industrials fell 146.98 points, or 1.6%, to 8,917.64.

The market overall bounced back late in the day from its worst losses. The Dow had traded as low as 8,840.

Though Monday's pullback was the biggest for the Dow since its Jan. 9 plunge of 222 points, or 2.8%, Nasdaq suffered a bigger percentage drop on March 5, when it lost 2.7%. Trading volume Monday was heavy but not record-setting.

Some analysts were quick to describe Monday's drop as an overblown reaction to a Wall Street Journal story contending that the Federal Reserve, at its March 31 meeting, decided to shift to a stance of "leaning" toward increasing short-term interest rates to slow the U.S. economy.

The Fed last raised interest rates slightly 13 months ago.

"This was an incredible overreaction by the [financial] markets," said Robert G. Dederick, economist at Northern Trust Co. in Chicago. "What Fed officials have been saying is only that if they don't get more evidence of [an economic] slowdown, they may have to raise rates. They haven't said they are about to raise them."

Still, some investors were inclined to sell first and ask questions later--especially given the huge profits many people have racked up in stocks so far this year.

Losers swamped winners by 2,866 to 335 on the New York Stock Exchange.

In the bond market, yields rose across the board. The 30-year Treasury bond yield jumped from 5.94% on Friday to 6.05% on Monday, the highest since March 3 and the biggest one-day increase in six months.

The yield on the five-year T-note rose to 5.77% from 5.64%.

The bond market set the tone for stocks, but a renewed plunge in Asian stocks Monday--preceding Wall Street's opening--also hurt sentiment.

Tokyo's Nikkei-225 stock index fell 361.29 points, or 2.3%, to 15,649.95 on fresh disappointment over the Japanese government's latest program aimed at stimulating the country's slumping economy. That dragged the rest of Asia down.

European stock markets--most of which, like the U.S. market, have soared this year--also opened lower Monday, and were further pressured as U.S. trading opened and Wall Street slid.

The French market ended down 2.6% for the day, while British shares fell 2.4%. Then Latin American stock markets tumbled with Wall Street. Brazil's market took the biggest hit, falling 5.7%.

Any rise in U.S. interest rates could have profound implications for the rest of the world, especially in developing nations that might have to raise their own rates to keep capital from flowing into higher-yielding U.S. bonds.

Still, many analysts insisted Monday that Fed officials may be trying to use the media to "jawbone" the economy and the red-hot U.S. stock market into slowdowns. The Fed controls short-term rates, not long-term bond yields, but talk of higher short-term rates could boost bond yields further, thus slowing housing and other key economic sectors.

For the stock market, some analysts noted, a slowdown might be welcome: The Dow had surged 16% year-to-date through last week's record high of 9,184.94. The index jumped 23% last year.

The gains could encourage heavier profit-taking in the weeks ahead, analysts noted.

Among Monday's highlights:

* Financial stocks falling on worries about interest rates included J.P. Morgan, down $3.88 to $131.75; BankAmerica, down $4 to $80.63; Citicorp, down $5.56 to $149.63; Washington Mutual, down $2.94 to $69.44; and Charles Schwab, down $1.31 to $33.13.

* Among home builders, Kaufman & Broad slumped $2.25 to $28.69 and Centex dove $2.69 to $35.69.

* Tech stocks were broadly lower. Intel lost $2.06 to $80 and Dell dropped $2 to $74.31.

* Drug stocks, also leaders in this year's rally, fell sharply. Pfizer sank $4.81 to $113.44; Merck dropped $3.69 to $112.81.

* Surprising some analysts, gold stocks fell, as did the price of the metal, despite concerns that the Fed may be motivated by signs of higher inflation.

Barrick Gold fell 63 cents to $22.31. ASA lost $1.56 to $24.94.

* Airline stocks were weak, with Delta falling $4.44 to $112.94 and US Airways down $4.13 to $69.56.

* Among the relative stocks that rose, PLC Systems surged $5.44 to $17.81 after an advisory panel of the Food and Drug Administration recommended marketing approval of the company's heart laser to reduce chest pain.

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Market Roundup, D14

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* WILL THE FED MOVE?

Some analysts say central bank may simply be "jawboning" on interest rates. A1

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Blue Monday

Wall Street's slide Monday was preceded by deep declines overnight in Asian stocks and by sharply lower prices in Europe. Latin American stocks fell with Wall Street. A sampling of how key market indexes fared:

*--*

Market/index Monday close change Pctg chng. Brazil/Bovespa 11,057.00 -671.00 -5.7% Mexico/Bolsa IPC 4,909.77 -176.46 -3.5 Hong Kong/Hang Seng 10,593.71 -286.22 -2.6 France/CAC-40 3,685.83 -97.51 -2.6 Britain/FTSE-100 5,722.40 -141.50 -2.4 Japan/Nikkei-225 15,649.95 -361.29 -2.3 Sweden/OMX 718.76 -16.49 -2.2 U.S./S&P 500 1,086.54 -21.36 -1.9 Canada/TSE-300 7,564.77 -138.47 -1.8 Germany/DAX-30 5,088.13 -56.15 -1.1

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Source: Times research

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