NEW YORK (CNNfn) - Federal Reserve Chairman Alan Greenspan used his power over Wall Street Thursday, cooling off the stock market with cautious talk about potential inflationary pressures on the economy.
The Dow Jones industrial average lost 8.59 points to 10,946.82. Losers outnumbered gainers by a narrow margin of 1,491 to 1,479 on the New York Stock Exchange, where volume reached 879 million shares.
The Nasdaq Composite suffered much heavier losses, tumbling 62.17 points, or 2.5 percent, to 2,472.28, and the S&P 500 index dropped 15.23 to 1,332.08.
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.
Richard Cripps, chief market strategist at Legg Mason, said fear of higher interest rates eventually could drive many investors to shift money out of stocks and into bonds. (124K WAV) or (124K AIFF)
Still, on Thursday, the bond market found Greenspan's 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 a fresh 11-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 dumped 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 2-15/16 to 77-5/16 and IBM (IBM) losing 2-3/4 to 209-1/4. Dell (DELL) slipped 1-7/8 to 38-7/16 and Gateway (GTW) edged down 2-1/2 to 64-1/8.
Among other technology bellwethers, Intel (INTC) shed 4-5/16 to 59-11/16 and networking leader Cisco (CSCO) declined 4-1/32 to 106-15/16.
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 3-11/16 to 135-5/16, and Citigroup (C) slipped 2-3/4 to 70. American Express (AXP) was the only Dow financial component to swim upstream, rising 1-5/8 to 131.
Microsoft and AT&T hold firm
One bright spot in the technology sector was software giant Microsoft (MSFT), which saw shares ease 1-3/16 to 77-15/16 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 rose 1-15/16 to 58-7/8, while MediaOne jumped 2-5/16 to 79-3/16.
The commonly traded non-voting stock of Comcast (CMCSK), the former leading contender for a MediaOne acquisition, edged up 1 to 38-13/16. However, Comcast's less liquid voting shares (CMCSA), which would have been traded to MediaOne shareholders and which are primarily held by company insiders, finished up 1-3/16 at 36-11/16 after a 2-for-1 stock split.
Cyclicals save the Dow
The Dow industrials' modest losses for the day were largely due to strength among the index's cyclical components -- companies that benefit from the strength of the economy and which have been the latest darlings of investors as technology stocks fell out of favor.
Among Tuesday's beneficiaries of the latest Wall Street trend, shares of Alcoa (AA) gained 3-9/16 to 63-3/4, Caterpillar (CAT) advanced 1/4 to 65-3/8, International Paper (IP) rose 1-3/8 to 57-7/8, and DuPont (DD) finished the day up 1-3/4 to 72-11/16.
(Click here for a look at today's list of CNNfn's market movers.)
(Click here for a look at today's CNNfn technology stocks report.)
-- by staff writer Robert Scott Martin