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Wall St. anxious over rates
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June 1, 1999: 5:21 p.m. ET
Cyclical stocks thrive, but financials, techs lose ground amid inflation fears
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NEW YORK (CNNfn) - Wall Street writhed in inflation anxiety Tuesday as investors returned from a three-day holiday weekend only to find more economic data pointing in the direction of possibly higher interest rates.
As a result, stocks foundered and those with high interest-rate sensitivity, like financial and technology issues, fared the worst. Cyclical stocks, which thrive on the strength of the economy, pulled out of the selling whirl, scoring solid gains by the end of the day and helping the Dow industrials start the week with a positive close.
The Dow Jones industrial average overcame a loss of more than 150 points to rise 36.52 points to 10,596.26. The Dow's late recovery also narrowed the negative market breadth on the New York Stock Exchange, where declines outnumbered advances 1,548 to 1,411, while trading volume reached a relatively light 687 million shares.
The Nasdaq Composite plunged 58.49 points, or 2.4 percent, to 2,412.03. The S&P 500 index shed 7.58 to 1,294.26.
The release of the National Association of Purchasing Management index, a key indicator of manufacturing activity, fed the selling fires in both the stock market and the bond market. The index came in at 55.2 in May, much higher than the 53.4 reading investors had expected.
Bond traders took the news as confirmation that the Federal Reserve soon will raise interest rates, perhaps as early as the end of the month. The bellwether 30-year Treasury bond plunged 1-7/32 points in price, pushing the yield to 5.92 percent -- the highest it has been in more than a year.
The dollar retreated from both the yen and the euro, pulled lower as stocks and bonds fell.
Financials on the run
A slew of news from banks and Wall Street brokerages hitting the market after a three-day holiday weekend failed to inspire buyers, as most investors remained concerned about the possibility of rising interest rates ahead.
A climate of rising interest rates is especially harmful to financial stocks because higher rates make the primary business of the sector -- dealing in dollars -- more expensive.
Merrill Lynch (MER), the nation's largest traditional brokerage, heaped uncertainty on the brokerage sector by announcing plans to launch trading on the Web.
The move, which makes Merrill the latest in a string of mainstream Wall Street institutions to dip into Internet business, left investors wondering what impact the jump into online trading will have on the industry's business model and earnings projections, said Bill Meehan, chief market analyst at Cantor Fitzgerald.
Merrill shares tumbled 8-3/4 to 75-1/4, a loss of more than 10 percent. Rival Donaldson, Lufkin & Jenrette (DLJ) fared little better, losing 5-3/16 to 61-3/4, while its online brokerage arm DLJdirect (DIR), whose stock premiered on the market last week, lost 4-1/4 to 38-3/4. Shares of the largest online brokerage Charles Schwab (SCH) shed 6 to 99-1/2.
Shares of online trader E*Trade (EGRP) slid 5-3/16 to 39-5/16 after the company agreed to buy Web bank TeleBanc (TBFC) for $1.8 billion. TeleBanc shares surged 8, or more than 12 percent, to 74-1/2.
In the banking sector, shares of First American Corp. (FAM) jumped 2-13/16 to 43-5/8 on news rival AmSouth Bancorp (ASO) has agreed to buy the company for $6.3 billion in stock. AmSouth's stock plunged 3-15/16, or almost 14 percent, to 24-7/16.
Other banking stocks were sharply lower, pulled down by the rate fears and the upward spiral in bond yields. On the Dow, Citigroup (C) lost 1-1/4 to 42-15/16 and J.P. Morgan (JPM) tumbled 5-13/16 to 133-1/2, while American Express (AXP) eased 2-7/8 to 118-3/16.
Techs, Nets under pressure
The threat of higher rates ahead also kept the selling pressure on the richly valued technology sector, which depends on sustainable interest rates for capital growth.
Intel (INTC) shares lost 3-3/8 to 50-11/16 after the chip giant announced it will buy communications software maker Dialogic (DLGC) for $780 million in cash, or about $44 per share. Investors streamed into Dialogic, pushing the stock up 10-1/16 to 43-7/16.
Among the computer makers, Dell (DELL) slipped 1-3/8 to 33-1/16 and Dow component IBM (IBM) fell 4 to 112. Fellow Dow member Hewlett Packard (HWP) gave up 4-3/16 to 90-1/8 after Banc of America analyst Kurt King downgraded it to "hold" from "buy" on valuation concerns spurred by his belief that demand for Unix-based computers will wane ahead of the Year 2000 computer event.
In his brief to investors, King gave Sun Microsystems (SUNW) a similar knock to "hold" from "buy," sending shares down 3-3/4 to 56, as he counseled investors to "step to the sidelines for now."
Microsoft (MSFT) lost 2-3/16 to 78-1/2 as the software behemoth's long-running federal antitrust trial resumed amid reports the company is making an aggressive push to woo wireless communications firms to use its Windows-based operating systems.
Elsewhere in the wireless field, a $3 billion merger failed to win much investor support, pushing shares of wireless communications supplier The Associated Group (AGRPA) down 2-3/4 to 62-1/4 while cable TV provider Liberty Media (LMG.A), the prospective buyer, eased 3/16 to 66-1/4. Wireless Internet provider Teligent (TGNT), which is 41-percent owned by Associated, found better favor in Wall Street's eyes, leaping 5-7/16 to 54-9/16.
Among the Internet heavyweights, Amazon.com (AMZN) stock tumbled 12-15/16 to 105-13/16 after Barron's called the company "Amazon.bomb" and suggested in its May 31 issue that shares may be worth as little as $10.
Rival Web bookseller barnesandnoble.com (BNBN) lost 3-3/16 to 20 amid reports that parent company Barnes & Noble's (BKS) proposed merger with privately held wholesaler Ingram & Co. could face federal opposition.
Cyclicals celebrate
A trend that dominated the stock market about a month ago as investors moved from high-flying growth into economically-sensitive cyclical stocks resurfaced Tuesday after the NAPM report was released.
Shares of industrial staples and Dow members Alcoa (AA), Caterpillar (CAT) and DuPont (DD) all soared amid the cyclical rotation, helping the Dow end the day with a small gain.
Airlines fly, oil sinks
One bright spot for the market was the transportation sector, which rebounded amid strength in major airline stocks and waning oil prices.
The Dow transports gained 50.90 points, or 1.5 percent, to 3,466.60 as more leading air carriers signed on to a fare increase, the third this year. American Airlines raised its ticket prices 4 percent Monday, lifting shares of parent company AMR (AMR) 2-3/16 to 67-1/4.
US Airways (U), which also raised fares Monday, gained 13/16 to 49-3/8, while Delta Air Lines (DAL) added 1-9/16 to 58-15/16.
Elsewhere in the sector, Northwest (NWAC), which joined the fare hike Tuesday, edged up 3/4 to 34 and Continental (CAL), which started the ball rolling by raising ticket prices Friday, gained 1-5/8 to 40-7/8.
Meehan of Cantor Fitzgerald also noted that weaker oil prices were feeding the fuel-sensitive airline sector's gains. The most actively traded July light sweet crude price retreated 50 cents to $16.34 per barrel as traders began to doubt whether the recent oil rally was justified.
Shares of oil companies followed crude lower, with Dow driller Exxon (XON) falling 1-1/8 to 78-3/4 while fellow blue chip Chevron (CHV) lost 2-1/16 to 90-7/16.
(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 Malina Poshtova Zang with Robert Scott Martin
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