Profit Taking Sends the Dow Down by 8.72 : Market Overview

Treasury bond yields soared after the government reported a sharp rise in consumer prices. The yield on the key 30-year bond crossed the psychologically important 8% level to close at 8.02%, up from 7.88% Wednesday.

The surge in bond yields unleashed profit taking in stocks. The Dow Jones industrial average lost 8.72 points to 3,053.00. Meanwhile, oil prices rose again.

Stocks

Analysts were surprised that the market didn’t fall further--given the jump in interest rates and considering that the Dow index had gained 115.39 points between last Thursday and Wednesday, when it closed at a record 3,061.72.

On the New York Stock Exchange, volume stayed heavy at 206.03 million shares, down from 225.40 million Wednesday. But declining stocks topped advancers by only a slim 811 to 777.

The market clearly isn’t prepared for a sustained rise in interest rates at this point, because the expectation of lower rates has been the driving force behind the rally all year, analysts note.

The surprising inflation figure--a 0.4% rise in consumer prices in September--was viewed on Wednesday as an aberration by many traders. Most still believe that the economy is too weak to mount a strong recovery and that the Federal Reserve will have to lower interest rates again soon.

“I think rates will continue to move lower, even if it’s not right this second,” said Philip Orlando, equity portfolio manager at Unity Management Inc.

If rates stabilize quickly, investors will be left focusing on third-quarter corporate earnings--which continue to show a mixed bag of good and bad news, keeping the market volatile.

Among the market highlights:

* Health-care stocks were again in the spotlight. California health-maintenance organization FHP International plunged 4 7/8 to 12 3/4 after it said quarterly earnings would be well below estimates, partly because high unemployment in Southern California had slowed enrollment. FHP said results in the quarter just ended would be 18 to 20 cents a share, down from 30 cents a year ago.

Other HMOs fell on the news, including PacifiCare, down 3 3/4 to 22 7/8, and Maxicare, off 3/8 to 8 3/8.

* Reebok plummeted 3 3/4 to 30 1/8 after saying sales of its Pump athletic shoes will probably drop by 30% in the first quarter of 1992, compared to 1991. Reebok blamed the weak economy. Rival L.A. Gear added 3/8 to 14 1/8.

* Personal computer firm AST Research sank 4 to 28 after its quarterly profit fell below analysts’ estimates. PC competitor Dell Computer dropped 4 1/8 to 30 7/8 on the news. Apple Computer lost 1 1/8 to 52 3/8, but in after-hours trading it jumped back to 54 1/2 after it reported quarterly earnings in line with estimates.

* Among industrial stocks, rail-car lessor GATX slumped 8 1/4 to 29 3/8 after it said 1992 earnings would be below 1991 levels. But generally, industrial stocks provided most of the market’s strength Thursday, as on Wednesday. Caterpillar rose 1 3/8 to 47 1/2, machinery firm Ingersoll-Rand added 1 1/4 to 50 1/4, and adhesives firm Avery Dennison jumped 1 3/4 to 23.

* Westlake Village-based Dole Food rose 1 3/8 to 41 7/8, but the stock is likely to fall sharply today: Late Thursday the company said the recent quarter’s earnings were 43 cents a share, down from 74 cents a year ago.

Overseas, stocks ended firmer in Tokyo. The Nikkei average rose 105.18 points to 24,439.85.

Losses in autos and chemicals pulled the Frankfurt bourse down. The DAX average fell 5.60 points to 1,564.51. In London, the Financial Times-Stock Exchange index of 100 leading shares closed up 9.7 points at 2,588.7.

Credit

The September inflation report showing a 0.4% rise in consumer prices was twice as high as expected and strongly suggested that the Federal Reserve will refrain from easing interest rates soon.

That sent some bond traders scurrying for the exits, figuring that the long slide in rates was over.

But while the rise in the 30-year Treasury bond yield to 8.02% was a shocker, at least one Fed official hinted that there may yet be room for lower rates.

Fed Governor Edward Kelley said in a speech that he still expects the core inflation rate to decline over time. He also said the economy was likely to continue a slow recovery. Those trends would allow for lower interest rates.

But for now, economists said, the Fed will probably delay further easing of rates until they see next month’s economic figures.

The federal funds rate, the interest banks charge each other for overnight loans, fell to 5.188% from 6% Wednesday.

Currency

The dollar finished lower against most major currencies.

Initially, the U.S. Consumer Price index report sent the dollar higher, because prospects for stable or higher interest rates would support the dollar.

But dollar traders later bailed out, apparently unconvinced that the inflation number signaled a turning point for the dollar.

The currency fell in New York to 1.697 German marks from 1.706 Wednesday and to 129.45 Japanese yen from 130.10.

Commodities

Energy prices continued their advance, but crude oil stopped short of its recent peak of $24 a barrel.

Light, sweet crude for delivery in November settled at $23.93 per barrel, up 26 cents, on the New York Merc. That erased crude’s loss of 19 cents on Wednesday, resuming a rally that has pushed oil up by $1.72 a barrel the past three weeks on tight supply worries.

Elsewhere, gold advanced in late buying on New York’s Comex, as October contracts rose $1.80 to $360 an ounce. December silver ended 0.02 cent lower at $4.13.