Economic Data Hammer Bonds; Stocks Slump

Wall Street’s new year opened with disappointment Thursday, as bond yields surged on strong economic data and stocks closed broadly lower.

Many foreign stock markets also were off sharply on the first day of trading in 1997.

The Dow Jones industrial average came perilously close to recording two back-to-back 100-point down days, before a late buying surge erased midday losses.

The Dow, which had sunk 101.10 points on Tuesday as bond yields leaped, was off 88 points at midday Thursday before quickly recovering in the final minutes to close off 5.78 points at 6,442.49.

The broad market wasn’t as fortunate. Losers swamped winners by 18 to 8 on the New York Stock Exchange. The Standard & Poor’s 500 index lost 0.5% to 737.01, and the Nasdaq composite index dropped 0.8% to 1,280.78.

In the bond market, the yield on the bellwether 30-year Treasury bond jumped to 6.74% from Tuesday’s 6.64%, and now is the highest since Oct. 28.

Yields were pushed higher as traders reacted to the National Assn. of Purchasing Management’s monthly survey released Thursday, which found that the nation’s manufacturing economy accelerated in December.

What’s more, the purchasing managers’ index of prices paid for supplies, considered an indicator of inflation trends, rose to 51.5 in December--its highest since July--from 45.9 in November.

For nervous investors, “There’s nothing more fundamental than inflation expectations and interest rates,” said Robert Stovall, president of Stovall/Twenty-First Advisers, explaining some market participants’ decision to dump bonds and stocks on Thursday.

But few experts believe that Thursday’s data suggest the economy and inflation are picking up significant speed. Robert Froehlich, strategist at Van Kampen American Capital in Oakbrook Terrace, Ill., noted that another report Thursday showed that first-time claims for unemployment benefits rose to the highest level since summer. “That’s not a sign of a fast-growing economy,” he said.

As for the Dow’s dramatic turnaround in late afternoon, analysts cited “short covering” by investors who had bet on a short-term market pullback, and were closing out those bets.

Among Thursday’s highlights:

* In another sign of weak, rather than brisk, economic growth, most retail stocks sank on early reports showing disappointing holiday sales.

J.C. Penney fell 7/8 to 47 7/8 after warning of lower-than-expected quarterly earnings because sales came in below plan. CompUSA tumbled 4 1/2 to 16 1/4 after the computer retailer reported weak December sales.

Other retail stocks losing ground included Sears, off 3/4 to 45 1/4; Circuit City, down 3/4 to 29 3/8; CVS, down 2 to 39 3/8; and Wet Seal, off 3 1/4 to 18 1/8.

* Investors took profits in some sectors that have performed well recently. Real estate investment trusts slumped, for example, with CenterPoint Properties off 1 3/8 to 31 3/8, Vornado Realty down 1 3/8 to 51 1/8 and Crescent Real Estate off 2 1/4 to 50 1/2.

* Some technology issues also were off sharply. Compaq fell 2 to 72 3/8, Motorola lost 1 3/8 to 59 7/8 and Computer Sciences dropped 3 1/8 to 79.

* Brokerage stocks also gave back some recent gains. Merrill Lynch fell 1 3/4 to 79 3/4, Charles Schwab lost 1 1/8 to 30 7/8 and Bear Stearns dropped 7/8 to 27.

* On the plus side, Chrysler rose 1 1/8 to 34 1/8 on an upbeat December sales report, and GM followed, gaining 2 3/4 to 58 1/2.

Some other industrial issues also showed strength, including Dupont, up 1 3/8 to 95 1/2; Alcoa, up 1 3/8 to 65 1/8; and 3M, up 3 1/4 to 86 1/4. Those stocks may have been targeted by investors betting on faster economic growth in 1997.

Yet rail and airline issues, which also are tied to the economic cycle, suffered. UAL, parent of United Air Lines, lost 2 7/8 to 59 5/8, while Norfolk Southern sank 2 to 86.

Meanwhile, in foreign trading, many stock markets suffered sharp bouts of profit taking after recording stellar gains in 1996.

The Hong Kong market cued off Wall Street’s Tuesday plunge, with the Hang Seng index diving 1.8%. London shares tumbled 1.5%, Frankfurt’s key stock index lost 1.4% and Paris’ main index plummeted 2.5%.

In currency trading, the dollar finished mixed Thursday. In late New York trading the buck finished at 115.58 yen, down from 116.08 Tuesday. But it climbed to 1.543 German marks, up from 1.540.