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Inflation fears punish Dow
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May 14, 1999: 10:23 a.m. ET
Unexpectedly big jump in April CPI sends stocks lower as bond yields soar
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NEW YORK (CNNfn) - U.S. stocks opened with a tumble Friday after one of the market's worst fears materialized -- inflation at the consumer level posted its biggest increase in more than eight years in April.
At around 10 a.m., the Dow Jones industrial average lost 128.58 points, or 1.1 percent, to 10,978.61 as investors exited the market in droves amid surging bond yields and intensifying speculation that official interest rates could soon head higher as well.
Losers overwhelmed gainers on the New York Stock Exchange, with 2,035 stocks falling and 435 rising as trading volume reached 115 million shares.
The Nasdaq Composite followed suit, tumbling 31.49 points, or 1.2 percent, to 2,550.51. The S&P 500 index shed 19.07 to 1,348.49.
The market melee was caused by the April consumer price index report, which showed an unexpected jump in prices, largely due to the rising cost of oil around the world. Still, even excluding volatile food and energy prices, the core CPI rose a surprising 0.4 percent in April, twice the increase forecast by analysts.
The news sent the bond market into a free fall, pushing the bellwether 30-year Treasury bond down 1-23/32 points in price, and its yield up to 5.88 percent -- the highest it has been in about a year.
The dollar eased against the euro and the yen, as the fear of higher interest rates caused a general exit from U.S. financial markets. Longer term, higher interest rates would be supportive for a stronger currency.
Despite the surprisingly strong increase in consumer inflation in April, some analysts interpreted the CPI report as a one-time glitch in an otherwise solid trend of tame inflation. Charles Reinhard of ABN Amro said a jump in tobacco and apparel prices contributed to the overall CPI increase, but that the Federal Reserve is unlikely to raise short-term interest rates as a result of just one report.
The Fed's policy-making Federal Open Markets Committee is scheduled to meet Tuesday to discuss interest rates.
Financials take a tumble
Although selling in the stock market was broad-based, financial stocks -- which comprise one of the market's most interest rate-sensitive sectors - tumbled as soon as they opened for trading.
Among the Dow's components, American Express (AXP) lost 2-3/16 to 122-9/16, Citigroup (CCI) shed 2-3/8 to 71-1/16, and J.P. Morgan (JPM) fell 4-3/16 to 142-9/16.
Elsewhere in the market, Chase Manhattan (CMB) dropped 2-9/16 at 81-7/16 and BankAmerica (BAC) was down 1-1/2 to 69-3/16.
Higher interest rates would curtail borrowing and thus would mean less business for financial institutions. A sudden spike in interest rates could also trigger more loan defaults, another risk factor for the financial services business.
Technology stocks followed their financial brethren, hurt by speculation that higher interest rates are likely to further dampen a sector already haunted by inflated valuations.
Among the tech leaders, IBM (IBM) shed 3-5/16 to 242-11/16. The most heavily weighted Dow component climbed more than 20 points Thursday after the company issued a strong growth outlook at an analysts' meeting a day earlier.
Technology giants on the Nasdaq also took a beating, with Microsoft (MSFT) shedding 1-1/16 to 78-1/16, Intel (INTC) losing 15/16 to 59-1/8, Dell (DELL) falling 7/8 to 42-3/8 and Cisco Systems (CSCO) sliding 7/16 to 117-1/4.
Still, several stocks benefited from news that could improve business for their companies.
In the Internet niche, shares of @Home (ATHM) gained 6 to 155-5/16 on news the company had joined forces with Microsoft to speed up the launch of its high-speed Internet services.
And the stock of 3Com (COMS) climbed 2-1/16 to 28-5/8 after a story in Business Week magazine suggested the company is once again perceived to be a likely takeover target. 
-- by staff writer Malina Poshtova Zang
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