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Greenspan cools off Wall St.
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May 6, 1999: 3:18 p.m. ET
Stocks stumble after Fed chief warns minimal inflation won't last forever
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NEW YORK (CNNfn) - Wall Street fought with weakness late Thursday as bond yields soared after Federal Reserve Chairman Alan Greenspan warned the strength of the U.S. economy and the lack of inflation are not a trend that will last forever.
Shortly before 3 p.m. ET, the Dow Jones industrial average was down 92.20 points at 10,863.21. Losers outnumbered gainers 1,616 to 1,304 on the New York Stock Exchange, as volume reached 676 million shares.
The Nasdaq Composite suffered even heavier losses, tumbling 58.59 points to 2,475.86, and the S&P 500 index dropped 22.98 to 1,324.33. (Click here for a look at today's list of CNNfn's market movers.)
Much of Wall Street's gloomy tone was due to a severe weakness in bonds, which broke a key level of support after Greenspan's comments. Greenspan offered investors little comfort, instead quashing the market's utopian belief that the U.S. economy is in "a new era" of sustained growth without inflation.
In particular, the Fed chief, who is the leading arbiter of U.S. interest rate policy, warned investors that while low oil prices and an efficient work force had kept inflation minimal, neither condition is likely to last forever.
The bond market found the remarks particularly unnerving. Dread that inflation and higher interest rates are set to pounce pushed the benchmark 30-year Treasury bond down 1-4/32 points in price, driving the yield up to fresh 9-month high of 5.79 percent.
Bonds' weakness kept the dollar from making much headway against the yen despite Greenspan's description of Japan's economic recovery as "fragile." The euro, meanwhile, continued on its recent upward course to hit a three-week high against the U.S. currency.
Bad news for techs, banks
Back on Wall Street, investors hesitated to reward technology stocks even though Greenspan repeated his praise for technology as a leading factor in the economy's struggle to expand without generating inflationary pressures.
Instead, rising bond yields spooked investors already wondering how the tech sector can justify its high valuations, especially if the threat of inflation spurs the Federal Reserve to increase interest rates.
The Dow's computer makers were down, with shares of Hewlett Packard (HWP) shedding 2-3/8 to 77-7/8 and IBM (IBM) losing 2-1/4 to 209-3/4. Dell (DELL) slipped 1-1/4 to 40-1/16 and Gateway (GTW) edged down 1 to 65-5/8.
Among other technology bellwethers, Intel (INTC) shed 4-3/16 to 59-13/16 and networking leader Cisco (CSCO) declined 4-5/32 to 106-13/16.
Greenspan's increasingly cautionary tone also doomed financial stocks to a gloomy day. Banks are especially sensitive to fluctuations in long-term interest rates as reflected in bond yields, leaving investors with little reason to expand their financial portfolios.
Shares of J.P. Morgan (JPM) fell 2-7/8 to 136-1/8, while elsewhere in the Dow financial components Citigroup (C) slipped 2-5/8 to 70-1/8 and American Express (AXP) lost 2 to 127-3/8.
Microsoft and AT&T hold firm
One bright spot in the technology sector was software giant Microsoft (MSFT), which saw shares ease a modest 5/16 to 78-13/16 on the back of an arrangement with Dow telephony company AT&T (T).
The deal, aimed at finalizing AT&T's $58 billion merger with cable firm MediaOne (UMG), will give Microsoft a larger share of the software used in AT&T's television set-top networking devices in exchange for a $5 billion investment in AT&T preferred securities.
AT&T shares surged 4-11/16 to 61-5/8, while MediaOne jumped 2-3/8 to 79-1/4.
The commonly traded non-voting stock of Comcast (CMCSK), the former leading contender for a MediaOne acquisition, edged up 1/2 to 38-5/16. However, Comcast's less liquid voting shares (CMCSA), which would have been traded to MediaOne shareholders and which are primarily held by company insiders, traded up 13/16 at 36-5/16 after a 2-for-1 stock split.
-- by staff writer Robert Scott Martin
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