Stocks and Bonds Record Losses On Fear Interest Rates Will Rise
May 08, 2011
Stock prices slipped on Monday as investors fretted over the possibility that interest rates will rise and as long-term bond yields climbed to just shy of 7%. The dollar remained mixed. The Dow Jones Industrial Average skidded as much as 47 points at its low before closing with a loss of 28.85 to 5693.89. The Standard & Poor's 500-stock index fell 3.15 to 663.88, the New York Stock Exchange Composite Index slipped 1.34 to 355.89 and the Nasdaq Composite Index declined 3.83 to 1139.22. Gains in tobacco stocks initially buoyed the market as investors reacted to a jury decision reached on Friday that sided with cigarette makers in a suit seeking damages for the health effects of smoking. Philip Morris shares added 2 1/4 to 90 1/4. But the gains weren't enough to offset the effects of selling elsewhere. Ricki Pfaff, director of research at Sutton Financial Services in Chicago, said investors have clearly refocused on the potential for higher interest rates. Those fears had faded earlier this month after several economic readings suggested the inflation remained in check. But the Federal Reserve Board disclosed late on Friday that central bank policy makers in July adopted a new official leaning, or ``bias,'' on rates, saying that they are now inclined to lift rates rather than to keep them steady. The move added weight to the view that rates will rise, perhaps within several months. In recent weeks, economists have seen several signs that the economy may remain more vigorous in the third quarter than some analysts expected. A report on July durable goods orders issued on Friday was particularly robust. Monday's only economic reading, showing a slim drop of 0.5% in July existing home sales, did little to reverse the perception of strength. Long-term bonds dropped more than 5/8 point, or $6.25 for each $1,000 face amount, in New York trading, on top of the 1 1/4 points shed on Friday in the wake of the durable goods report. The yield on the 30-year Treasury bond, which moved as low as around 6.7% early this month, climbed to just shy of 7%. Bond yields move in the opposite direction of prices. The dollar remained mixed and traders said activity was subdued. Many investors are awaiting Japan's so-called tankan survey of business conditions, due later this week, before making aggressive moves. Signs of renewed strength could force Tokyo to lift rates, a move that would tend to lift the yen's value against other currencies. World-wide, stocks slipped in dollar terms. The Dow Jones World Stock Index was down 0.73 to 139.52 as of 5 p.m. EDT.
