With firm evidence of looming inflation finally in hand, Wall Street headed lower across a broad front Tuesday. But stocks bounced back from their worst losses in the final half hour of trading.
Even so, after the bell finally rang, analysts said they expect further increases in U.S. interest rates in days to come. And they said investors already have begun to edge out of equities into fixed-income securities, which could bring a full-scale correction to stocks.
The Dow Jones industrial average closed down 22.79 points at 3809.23 after trading off more than 40 points an hour earlier. Worries about inflation and higher interest rates have drained strength from the market throughout February.
The broader Nasdaq index closed down 3.86 to 788.64.
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Bond yields surged after the National Association of Purchasing Managers reported evidence of actual price increases, which have been much-rumored but little-seen until now. The yield on the benchmark 30-year Treasury bond rose to 6.78 percent, the highest since June 18.
Coupled with the federal government’s revision of fourth-quarter growth to a whopping 7.5 percent, the numbers added up to a near-assurance the Federal Reserve will raise short-term interest rates again soon. The Dow dropped 96 points Feb. 4 when Fed Chairman Alan Greenspan announced a quarter-point hike in rates as a preemptive strike against inflation.
There were few big drops among individual stocks attributable to Tuesday’s news. Instead, many took fractional losses, with decliners outnumbering gainers 2 to 1 on the Big Board.
Among the most active big-capitalization stocks, Telmex, the Mexican telephone company, lost 87 cents to $66.12, Philip Morris in the battered tobacco group lost 50 cents to $55.50, and AT&T lost 25 cents to $52.25.
Weighing on the industrial average were losses in Minnesota Mining & Manufacturing, down $1.87 to $103.50; Chevron, off $1.50 to $85.12; Goodyear Tire & Rubber, down $1.25 to $44; and International Paper, off $1 to $71.62.
World markets also weakened on the expectation of higher U.S. interest rates. Latin American markets, more volatile than most, took heavy losses. Indexed stocks dropped 2.8 percent in Mexico and 7 percent in Argentina.
Heartland report
While traders will argue about the meaning of Tuesday’s numbers, the kind of strength exhibited by a 7.5 percent growth figure clearly shows the U.S. economy has an unchallenged claim again to the No. 1 spot among the world’s industrialized economies.
And though it was popular to portray Japan as an economic juggernaut during the ’80s and early ’90s, when its quality-superior autos and steel were draining jobs and fortunes out of the Heartland, that’s no longer entirely true. Many U.S. products have caught up, and U.S. manufacturing has its own successes. Japan and Europe remain in a recession, once again hoping growth in the U.S. will lead them out of trouble.
Celebrating the U.S. quest for quality is the business of Celex Group of Lombard, which sells high-end inspirational paraphernalia-their products are familiar from advertisements in many airline magazines (the name is a shortening of “celebrate excellence”).
On Tuesday, Celex had its own celebration. It reported sharply higher earnings in the last full quarter, with sales more than doubling to $10.4 million from $4.5 million for the same period a year earlier.
Income rose to $946,000 from $497,000 for the comparable period in 1992. Earnings per share rose to 32 cents from 24. Celex offered nearly 1 million new shares to the public last year, raising the total to 3 million and skewing the comparison. It plans to issue an additional 1 million or so shares this summer.
The stock has been listed on the Nasdaq index only since last December and has nearly doubled in that time, from a low of $15 in December to a close Tuesday of $29.50.