Wednesday's Markets: Bonds Spill, Stocks Buckle

By Kevin Petrie ,

Investors drubbed stock prices as fears of rising interest rates intensified.

The

Dow Jones Industrial Average

fell 70.73 points to 6402.52, the

Nasdaq Composite Index

lost 3.43 to 1309.12 and the

S&P 500

index skidded 6.81 to 740.73.

Robert Hormats, vice chairman of

Goldman Sachs International

, shook the markets by openly speculating that Japanese investors might lose interest in the U.S. Treasury market. Though Japanese data and investment professionals disputed Hormats' comments, bond prices slid lower. Adding to the bond market's ill mood: November wholesale prices registered a gain of 0.4%, compared with expectations of a 0.3% gain.

"The sensitivity to the news is heightened by the speculative froth" among investors that Fed Chairman Alan Greenspan had cautioned the street about last week, says Charles Crane, director of research at

Spears Benzak Salomon & Farrell

, a New York money management firm.

With rates rising, financial stocks slumped badly. The one group holding firm in the selling deluge: technology.

Intel

(INTC:Nasdaq) boldly fought against the selling tide, climbing a hefty 7 + to 136 7/8. Merrill Lynch helped the stock, boosting 1997 earnings estimates to $9 per share. Also, executives of the mighty chip maker said factory production was robust. Meanwhile,

IBM

(IBM:NYSE) slipped 1 5/8 to 156 1/8 even as CEO Louis Gerstner lauded his company's new network computers and

Cowen & Co.

reiterated its "strong buy" rating on Big Blue. Early-morning whispers said IBM might make a profit-warning announcement. The firm said it had no such news to report on Wednesday.

On the small-cap losing side:

Eagle Point Software

(EGPT:Nasdaq) was down 1 3/4 to 3 15/16; and

Boole & Babbage

(BOOL:Nasdaq) closed down 3/8 at 20 3/4.

Melissa Brown, director of quantitative research at

Prudential Securities

, said that investors have been spooked about earnings at the tail end of the last five quarters. Today's performance fits into that cycle.

Brown added that "with the market up at these kinds of levels, there are probably a lot of things that can contribute to unease."

In coming days, traders will keep an eye out for the

Consumer Price Index

, retail sales figures and inventory figures. Signs of economic strength would likely sting bond prices even more, analysts said.

By Kevin Petrie

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