The stock market broke its four-day winning streak Thursday, as overseas investors scrambled off the bandwagon expecting the Federal Reserve to cut its short-term interest-rate target.
But in Treasury bond trading, prices climbed, sending interest rates on the 30-year bond to an all-time closing low of 5.18 percent from 5.22 percent late Wednesday. Treasuries rallied despite a slightly greater-than-expected gain in August consumer prices.
The Dow Jones industrial average sank 216.01 points, or 2.7 percent, to 7873.77, on New York Stock Exchange volume of 692 million shares–the lightest Big Board trading this month.
All 30 of the Dow industrials lost ground.
The broader Standard & Poor’s 500 index fell 26.61, or 2.5 percent, to 1018.87.
Bank stocks led the blue chips lower following Asian and European chagrin over Federal Reserve Board Chairman Alan Greenspan’s dampening of hopes for a coordinated interest-rate cut among major industrialized countries or a unilateral rate cut by the Fed.
The Keefe, Bruyette & Woods index of major bank stocks fell 3.7 percent. J.P. Morgan, a member of the Dow, slid $5.75, to $89.50. Citicorp lost $6.50, to $96.25, after the company and Travelers Group said they may shed 8,000 jobs after their planned merger.
Telecommunications-equipment suppliers sank after one company in the group, Alcatel, said weakness in Asia and Russia would hurt profits. Alcatel fell $12.06, to $19.25, and Lucent Technologies dropped $4.25, to $72.12. Locally, Tellabs in Lisle dropped $3.56, to $40.06.
Among other active NYSE-stocks, Gillette dropped $3.31, to a 52-week closing low $36.87. The company on Wednesday forecast disappointing third-quarter results.
After the close of New York trading, shoe and apparel giant Nike posted better-than-expected fiscal first-quarter profits. The results, equaling 56 cents a share, topped the 47 cents forecast on average by analysts tracked by Zacks Investment Research.
Nonetheless, Nike’s profits were down 35 percent from the year-earlier quarter, as sales dropped by 9.5 percent. New orders for the September through January period were off 15 percent from a year earlier, including a 7 percent decline in the United States.
A reversal of a recent rally in Internet-related stocks helped send the Nasdaq composite index down 43.66, or 2.6 percent, to 1646.25. Internet service Yahoo, a strong performer Wednesday, gave back $3.31, to $90.06.
The Russell 2000 index of small-company stocks fell 4.56, or 1.3 percent, to 355.29.
U.S. stocks followed Asian and European markets lower. In Mexico, the principal index of the Mexico Stock Exchange slipped less than 1 percent on the first day of trading since Greenspan appeared to snub the idea of coordinated rate cuts. Mexican markets were closed Wednesday for a holiday.
Higher interest rates in Mexico kept stocks under pressure, but stocks recovered from a 5.7 percent morning sell-off. The same pattern played out in Brazil, where the principal stock index closed down 4.8 percent after a 10 percent slump at the opening.
Market sentiment in Mexico was bolstered by the recent steady rise in crude-oil prices. Since a mid-June low of $11.56 per barrel in New York futures trading, oil has climbed to near $15 per barrel.
In Thursday’s trading, the October crude-oil contract gained 33 cents, to $14.86, the highest level since mid-July, amid a developing storm in the Gulf of Mexico that could threaten oil supplies. The La Nina aftermath of last year’s El Nino weather pattern is expected by some analysts to spawn serious hurricanes in the gulf this fall.
Chicago-based Amoco on Thursday evacuated workers from its off-shore platforms in the central and eastern portions of the gulf.
Europe holds fast: The taste for equity investing among Europeans, a relatively recent phenomenon known as “equityphoria,” persists, despite recent market volatility, said Rainer Vermehren, manager of the Deutsche Top 50 World Fund.
That’s good news for U.S. investors. The rush of European money into U.S. stocks in recent years has provided an important boost to the bull market of the 1990s.
Vermehren, based in Frankfurt, said 27 of the 50 global companies in his fund are U.S.-based. Nearly 60 percent of the assets are held in U.S. stocks, including Coca-Cola, WorldCom, Gillette, Chrysler and McDonald’s.
Like many global equity managers, Vermehren believes such brand-name companies are favored by investors new to equity investing. “Everybody on the street knows these names,” he said. The fund is part of a new fund family sponsored by Deutsche Bank in Germany now available to U.S. investors.
With $18 trillion in savings, Europeans are discovering equities much as Americans did on a large scale beginning in the early 1980s. The appetite for stocks helped the Top 50 World Fund grow to $3.8 billion in about 18 months, almost entirely from European investors.
On current affairs, Vermehren said it’s no surprise that European nations struggling to coordinate their economies in advance of January’s debut of a single currency, called the euro, would resist pressure for lower interest rates to help emerging nations in Asia and Latin America.
The average short-term interest rate in the euro countries is 4.5 percent, a full point below the Federal Reserve’s 5.5 percent target rate for short-term U.S. rates.
“Rates have come down consistently in Europe for the last several years,” he said. “European officials are very focused now on Europe, and the stringent requirements for conversion” to the euro.
