The fatal attraction of higher interest rates reared its siren head on Wall Street again Tuesday, putting a crimp in the market’s two-day rally. Long-bond yields rose back to more than 8 percent.
The immediate cause of this spasm of concern was a stronger-than-expected report on consumer confidence. The Conference Board reported the highest optimism among consumers in four years, a reading of 101.3 points on the shopping Richter scale, up 12.2 from last month.
That brought the Dow Jones industrial average back from an initial rise to a loss that stayed in the teens during the day, then cleared to a near-wash by the close, ending down 1.01 points at 3738.55.
A continued strong showing by a few big stocks helped push the Nasdaq average to a solid gain of 5.75 points, at 751.48. The Nasdaq had gained 3.21 points Monday and 4.84 Friday. Among the largest issues, Oracle Systems, Novell, Microsoft, Amgen and Tele-Communications all rose.
Advancing stocks outnumbered declining issues 1,155 to 1,075 on the New York Stock Exchange, as volume grew to 288.9 million shares from Monday’s 265 million. The yield on benchmark 30-year Treasury bonds climbed to 8.03 percent from 7.98 percent Monday as prices, which move in the opposite direction to yields, dropped a half point, or $5 per $1,000 face value.
Giving substance to the warning of the Conference Board’s figures were remarks by Alan Blinder, vice chairman of the Federal Reserve Board, who called the U.S. economy “extremely strong” in remarks before a Florida audience. Blinder said at a public-education forum in Jacksonville that the economy appears to be growing at an annual rate in excess of 3 percent, about the same as before the Fed began increasing interest rates in February.
Though Blinder said the Fed expects growth to taper off a bit in the months ahead in response to the Fed’s six interest-rate increases this year, his remarks indicated more rate increases might be on the way.
Wall Street has been concentrating on the happy prospects of a brisk Christmas retail season and expanding earnings reports from companies. Traders have anticipated another interest-rate increase, but not until early next year.
On-line wars: It’s getting rough out there on the information superhighway.
America Online, one of the most volatile stocks among better-known companies, soared $2.87, to a 52-week high of $46, on reports that it will acquire the assets of Advanced Network & Services, which helped create the global Internet computer network.
America Online traded as low as $30.50 Oct. 17 on concerns about competition. CompuServe has twice as many customers as America Online’s 1.25 million subscribers. And Microsoft, the software giant, plans to incorporate its own on-line service in the next generation of the popular Windows program.
America Online, however, has done anything but swoon, roll over and die.
This month the company acquired two software companies, BookLink Technologies and NaviSoft. Booklink creates software for accessing information on the Internet, and Navisoft makes software tools for computer network publishing.
The three acquisitions are expected to help America Online, in which Tribune Co. has a stake, become a one-stop shopping provider among on-line services providing Internet access.
The big picture: World events, in the form of a world trade accord, gave the market some underlying strength Monday.
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After the market closed, the House voted by an overwhelming margin, 288-146, to approve the pact, reached under the General Agreement on Tariffs and Trade. The House had been expected to approve the accord, but the actual margin was staggering.
That should give impetus to pro-GATT forces in the Senate, scheduled to vote on the matter Thursday. If the margin had been slim, matters could have gotten dicey in the Senate, where the treaty needs not a simple majority but 60 votes.
The senators will vote on a special budgetary dispensation for the pact that requires 60 votes to pass, because the treaty reduces tariffs and thus cuts federal government income. Proponents argue that it will boost revenue by stimulating the U.S. economy, and thus increase tax revenue, but they cannot prove that this will happen over the next 10 years, as the law requires.
The market recently went into a swoon when Senate Republican leader Bob Dole of Kansas warned that he might extract a price for supporting the accord. Dole later recanted and pledged to support the trade pact after receiving minor concessions from the White House.
The silliest thing to do with this column is to predict the next day’s market activity. But the House vote should at least give Wall Street a psychological boost, unless there’s fire and brimstone coming from some other direction.
Heartland report: Kemper, the Long Grove-based financial-services firm looking for a suitable corporate match, could be worth $45 a share, Chris Wolter of Oscar Gruss & Son told Dan Dorfman of cable-TV channel CNBC. The company’s stock closed at $41.12, up $1.12.
Wolters said Kemper may be looking to sell the company outright or to sell some of its assets.