Stocks take a midday hit

Blackstone IPO, one of largest in history, can't soothe inflation fears; more hedge fund trouble rumored.

By Steve Hargreaves, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The stock selloff accelerated Friday afternoon, driving the Dow industrials down nearly 150 points, as the biggest public offering in five years failed to offset worries about creeping inflation and rising interest rates.

One trader also said rumors of more hedge fund trouble, as well as stock transfers from some major indexes, were keeping investors on the sidelines.

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The 30-share Dow (down 147.70 to 13,398.14, Charts) sank about about 1 percent with three hours left in the session. The broader S&P 500 (down 18.68 to 1,503.51, Charts) and the tech-laden Nasdaq (down 30.51 to 2,586.45, Charts) also both lost about 1 percent.

Stock trading has been volatile in recent weeks due to ongoing worries about whether rising bond yields and mortgage rates would hurt the economy, just as growth seemed to be picking up from a weak first quarter. Those worries returned Friday.

In addition, rumors about more hedge fund problems were hurting the market, according to Todd Clark, director of stock trading at Nollenberger Capital Partners in San Francisco. The rumors came after Bear Stearns struggled to rescue two troubled hedge funds this week.

"People think there might be another hedge fund that might be in trouble," said Clark.

Traders also said the Russell Indexes were rebalancing their listings, adding some new stocks and removing others, and investors were waiting to see what the new indexes will look like.

After a brief delay at the open, private equity firm Blackstone (Charts) debuted on the New York Stock Exchange at $36.45 a share, about an 18 percent premium over the price underwriters paid for the stock Thursday.

Blackstone priced 133.33 million shares at $31 a share Thursday to raise $4.13 billion. If underwriters exercise an option to to buy an additional 20 million shares, the total offering would be boosted to $4.75 billion, making it the largest U.S. IPO in five years and the sixth largest ever.

But the IPO action didn't do much for the broader market, which had no major economic news to trade on Friday and is still reeling from nervousness about rising interest rates.

After beginning lower, Treasury prices actually moved higher Friday, lowering the yield on the 10-year note to 5.15 percent. Bond prices and yields move in opposite directions.

But one trader blamed Friday's depressed market on lingering concern over higher interest rates.

"People might not want to be long going into the weekend," said Jay Suskind, co-head of capital markets at Florham Park, N.J.-based brokerage Ryan Beck & Co. "The market has been quite volatile in the last few weeks, based on interest rates and inflation and stuff like that."

Treasury yields have jumped in recent weeks on concerns over rising rates and inflation worldwide, especially in red hot economies such as China.

Investors have worried that higher rates could further damage the already battered housing market and crimp consumer spending. On top of that, a rate increase could slow corporate borrowing, which has fueled much of the recent merger and buyout activity that's helped lift stocks this year.

The potential closure of two Bear Stearns hedge funds hit by big losses in securities backed by subprime mortgages hasn't helped stocks either.

In corporate news, BP (Charts), facing pressure from the Kremlin, is close to a deal that would give up its holdings in a $20 billion Russian natural-gas project to state-controlled gas monopoly Gazprom, according to a report in The Wall Street Journal.

Standard & Poor's announced late Thursday that three companies being spun off from Fortune 500 companies would join that benchmark index, displacing three other companies. Two of the spinoffs will come from conglomerate Tyco (Charts) - Covidien, its maker of medical devices and supplies and electronics, while credit card issuer Discover Financial will be spun off from Morgan Stanley (Charts, Fortune 500).

The announcement hit the stocks of the three companies that will be dropped from the index, Sanmina-SCI (down $0.05 to $3.36, Charts, Fortune 500), PMC-Sierra (down $0.36 to $7.78, Charts) and ADC Telecommunications (down $0.72 to $18.42, Charts), which all saw their their shares fall in Friday trading.

The dollar hit a 4-1/2-year high against the yen, which was blamed on investors exiting low-yield holdings in the Japanese currency. The dollar fell against the euro.

Oil prices rose slightly as talks failed between the Nigerian government and labor union officials aimed at ending a general strike in Africa's largest oil exporter. U.S. light crude gained 7 cents to $68.72 a barrel.

European shares finished down. Markets in Asia ended mostly lower, although Hong Kong shares rallied.

Market breadth was negative, but trading was light - as is often the case on summer Fridays.

On the New York Stock Exchange, losers beat winners four to one on volume of 817 million shares. On the Nasdaq, decliners topped advancers by a margin of three to one on volume of 1.04 billion shares. Top of page

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.