Sept. 21, 1999
Stocks Decline as Trade Data Stoke Rate Fears
BY ANDREW FRASER INTERACTIVE JOURNAL
The Dow Jones Industrial Average suffered its third-worst point drop of the year Tuesday in a broad market decline that was stoked by worries about interest rates and a drop in the dollar. Bond prices fell.
The Dow industrials sank 225.43 points to 10598.47 -- its 11th-biggest point drop ever and the worst since a 228.63 decline on Jan. 14 -- as a widening of the U.S. trade deficit sparked fears that the Federal Reserve will raise rates. Other indexes also fell sharply. The Nasdaq Composite Index fell 65.05 to 2821.10, the Standard & Poor's 500-stock index dropped 27.95 to 1307.98 and the New York Stock Exchange Composite Index lost 11.11 to 600.99.
Though broad, the market's retreat was deeper among stocks that are sensitive to rising interest rates, such as financial and technology issues.
The drop also was heightened by a renewed decline in the dollar against the yen and by profit warnings in the technology sector just ahead of the reporting season for third-quarter earnings.
Shares tumbled after the Commerce Department reported that the U.S. trade deficit surged again in July to a record $25.18 billion. The data suggested consumers are still spending with a fury, which could increase pressure on the Fed to raise interest rates for a third time this year.
The unexpected rise in the deficit -- to the seventh-straight monthly record -- pushed up long-term yields in the inflation-sensitive bond market to 6.1% from 6.07% late Monday. It also exacerbated the dollar's weakness against the yen, which has hurt stocks recently because a weaker dollar makes returns on U.S. assets less attractive to foreign investors.
"The trade-deficit numbers certainly did not show what Wall Street wanted to see," said Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum. "The deficit shows that the consumer is still spending -- and spending strongly. It shows that the economy, as measured by the consumer, is still strong and that puts pressure on the Fed to raise rates."
The trade figure confirms other reports that have shown gains in retail sales and lower inventories, signs that consumption hasn't slowed despite two rate increases this year. Interest-rate sensitive financial and technology stocks took big hits on the news, which also added to a new worries for the dollar.
The dollar had retreated sharply against the yen early Tuesday after the Bank of Japan ended its board meeting and decided against raising interest rates. Traders had hoped for an ease in monetary policy as a step toward cooperation with the U.S. on halting the yen's rise. The dollar hit a 3 1/2-year low against the yen recently on optimism about Japan's recovery.
The U.S. currency 's slide was halted by expectations Japan's central bank would ease interest rates and speculation that the two countries were going to launch a coordinated yen-weakening intervention in foreign currency markets. Japan had intervened in the market several times, but traders said a more aggressive effort was needed to reverse the dollar's fall.
The dollar's decline and worries about interest rates sent bank stocks lower. The Keefe Bruyette and Woods bank stock index dropped 2%. Among the Dow components, J.P. Morgan fell 3 13/16 to 118 5/16 and American Express fell 1 7/16 to 137 3/4. However, the big decliner was Goodyear Tire & Rubber, down 4 5/8 to 47 5/16, after the company warned third-quarter earnings may be lower than Wall Street's expectations.
Technology issues also sank, pressured by a profit warning from Apple Computer late Monday. Among Dow components, Hewlett Packard lost 4 11/16 to 99 3/8 and International Business Machines fell 3 to 127 1/8.
Apple warned of reduced shipments, earnings and revenue because of a chip shortage from Motorola. The news surprised analysts, who have witnessed 1 1/2 years of improving results at Apple and had expected the streak to continue. Apple fell 7 9/16 to 71 1/2.
The Philadelphia Stock Exchange semiconductor index gave up 3.1%. On Nasdaq, Sun Microsystems fell 4 to 90 9/16, Intel lost 1 1/2 to 82 9/16 and Microsoft fell 2 13/16 to 94 3/4.
In major market action:
Stock prices fell. Volume was 788.8 million shares on the Big Board, where 2,343 stocks declined and 677 advanced.
Bonds retreated. The bellwether 30-year Treasury bond fell nearly 3/8 point, or $3.75 for each $1,000 in face amount, pushing up the yield to 6.09%.
The dollar weakened. It was quoted at 104.80 yen and $1.0493 to the euro, compared with 106.35 yen and $1.0358 to the euro late Monday.
Write to Andrew Fraser at andrew.fraser at wsj.com.
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