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Wall St. drifts in the red
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June 2, 1999: 1:51 p.m. ET
Fear of rate hike keeps stocks lower, although bonds lend some support
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NEW YORK (CNNfn) - A late show of confidence in the bond market gave Wall Street some staying power Wednesday afternoon, although the gloom inspired by the likelihood of higher interest rates ahead kept stocks drifting deep in negative territory.
Shortly before 1:30 p.m., the Dow Jones industrial average was off its morning lows, trading down 97.84 points at 10,498.42. On the New York Stock Exchange, declines outpaced advances by 1,792 to 1,025 on light trading volume of 405 million shares.
The Nasdaq Composite tumbled 34.42 points, or nearly 1.5 percent, to 2,377.61, and the S&P 500 index lost 10.11 to 1,284.15. (Click here for a look at today's list of CNNfn's market movers.)
Philip Rettew, Merrill Lynch senior market analyst, said investors were acting out their anxiety that the Federal Reserve would likely vote to raise interest rates soon. He said conditions were "not bullish for the market" and warned that Wall Street could see the Dow back at 10,000 and the Nasdaq back at 2,000 if the gloom continues.
An unsteady bond market was once again an accomplice in the stock market's decline. Bond yields, which reflect long-term interest rates, ticked up to their highest level in more than a year in morning trading after the April new home sales report showed an unexpectedly dramatic 9.2 percent increase.
However, a late morning coupon pass, in which the Federal Reserve bought $880 million in Treasury bonds from investors, lured some traders back into bonds. And Fed Chairman Alan Greenspan gave the market a slight relief rally by refusing to talk about interest rates in an afternoon speech.
The benchmark 30-year Treasury bond edged up 2/32 of a point in price to yield 5.92 percent.
The dollar gained modest ground against the yen, but rocketed higher against the euro, hitting record highs against the European currency. Euro bulls were disappointed by the European Central Bank, which left interest rates unchanged and failed to provide its young currency with any verbal support.
Rate fears deepen
Back in the stock market, investors shunned issues in interest-sensitive sectors, steering clear of financial and technology shares in particular ahead of the release of important economic data Thursday and Friday.
Thursday offers the latest readings on weekly jobless claims and factory orders for April. But the big number Wall Street is waiting for is Friday's release of the non-farm payrolls report for May, a number that could either confirm or quell the market's fears that inflation is on the rise and a rate increase is likely to follow soon.
Economists predict the payrolls report will show the number of new jobs created decreasing to 216,000 from 234,000 in April, indicating that the job market is blowing off steam. More importantly, the report is expected to show average hourly earnings increasing at a relatively flat rate of 0.3 percent, reflecting the continued absence of real wage inflationary pressures.
Fed chief Greenspan has repeatedly cited wage inflation as the weak link in the U.S. economy's expansion through which inflation will most likely return. As such, an unexpectedly strong reading in either the payrolls or earnings data will make it more tempting for the Fed to raise interest rates when it next meets June 29 and 30.
Even though the bond market's late recovery helped lift investors spirits, rate fears still battered the financial sector, which thrives when interest rates - the cost of dealing in dollars - remain low. Among the Dow's financial components, J.P. Morgan (JPM) dropped 4-5/8 to 128-7/8 and Citigroup (C) fell 2-1/8, or nearly 5 percent, to 40-13/16. American Express (AXP) lost 1-7/16 to 116-3/4.
Shares of regional banking company Banknorth Group (BKNG) fought the selling current, soaring 2-11/16, or more than 10 percent, to 29-7/16 on news Peoples Heritage Financial Group (PHBK) is buying the company for $780 million in stock. Peoples Heritage stock fell 1-3/16 to 16-13/16.
Techs, airlines join downturn
Airline stocks, however, which ordinarily prosper as the economy expands, recoiled from the broader market's uncertainty, giving up all their gains from Tuesday.
American Airlines parent AMR (AMR) lost 1-1/4 to 66 and United parent UAL (UAL) fell 1-3/4 to 64-3/4, while Delta (DAL) slid 15/16 to 58, helping drag the Dow transportation index down 61.27 points, nearly 1.8 percent, to 3,405.33.
Investors also fled technology stocks as higher interest rates loomed, forcing the suffering sector still lower. Like other growth-oriented companies, technology firms rely on low rates for capital growth, while rising rates would additionally make high valuations in the sector less tempting to Wall Street.
Most major technology players were lower. Shares of Dell (DELL) fell 1-3/16 to 31-7/8, while Gateway (GTW) lost 1-1/2 to 58-5/16 and Compaq (CPQ) eased 1/8 to 22-15/16. Among the Dow's computer makers, IBM (IBM) slipped 7/8 to 111-1/8 and Hewlett Packard (HWP) lost 2-1/8 to 88.
Internet stocks suffered particularly acute losses, led by Net venture capital firm CMGI (CMGI), down 8-3/8, or nearly 9 percent, at 87-7/8. Amazon.com (AMZN) fell 5-7/8 to 99-15/16, Lycos (LCOS) lost 3-5/8 to 89-1/8, and Yahoo! (YHOO) slipped 4-1/2 to 133-11/16.
On the bright side, shares of software maker Adobe (ADBE) inched up 3/4 to 73-1/4 after the company said its second-quarter earnings will exceed expectations and streamline operations, which includes reducing the work force by 9 percent. 
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