Inflation Fears Spark Dow Drop

Sat., Aug. 31, 1996

Associated Press

Another set of healthy economic statistics gave the stock and bond markets a headache Friday as investors started worrying again that inflation and higher interest rates may be on the way.

The Dow Jones industrial average fell 31.44 to 5,616.21 on top of Thursday’s decline of nearly 65 points. For the week, the Dow was down 106.53.

Declining issues outnumbered advancers by about a 9-to-5 margin Friday on the New York Stock Exchange. With many traders getting an early start on the three-day holiday weekend, volume totaled 256.95 million as of 4 p.m., compared with 321.10 million on Thursday and the slowest full trading day of the year on the Big Board.

The NYSE’s composite index fell 2.37 to 350.99. The Standard & Poor’s 500-stock index was down 5.41 to 651.99 while the Nasdaq composite fell 3.53 to 1,141.50. The American Stock Exchange market value index fell 1.66 to 559.68.

While the government reported that consumer spending and income rose modestly in July, factory orders rose a sharp 1.8 percent during the month, well beyond predictions of about 1 percent.

The Chicago purchasing managers index rose to 60 percent in August. Market watchers had expected about 52 percent. The index is considered a clue to the national purchasing managers index, an influential barometer of the industrial economy and one of the first reports of August activity, which comes out next week. Any reading above 50 indicates an expansion in manufacturing.

The news sent bond prices falling sharply, raising their interest rate yields. If those rate increases take hold in the economy, it will boost corporate and consumer borrowing costs, perhaps hurting profits. Higher rates also tempt market players to sell stocks to grab betterpaying interest-bearing investments.

“The economic news continues to be stronger than the majority had anticipated - and what the Fed probably desires - so it has conjured up concern,” said Alfred Goldman, vice president at A.G. Edwards & Sons Inc. in St. Louis. The numbers have made market watchers increasingly worried about the important August employment figures coming next Friday and what they might do to the Fed’s sentiments on interest rates.

The declines were exacerbated due to the light volume, he said.

“Interest rate related stocks are all down,” said David Shulman, chief market strategist at Salomon Brothers Inc. in New York. Chase Manhattan Corp., lost 1-1/2 to 74-3/8. Home builder Centex Corp., lost 3/4 to 32-1/8. Sallie Mae, the Student Loan Marketing Association, lost 2-1/4 to 73-5/8.

Exceptions to this trend were some smaller banks, which Shulman said rose because they are perceived as takeover targets after the announced buyout of St. Louis-based Boatmen’s Bancshares Inc., by giant NationsBank Corp. for $60.27 a share. Boatmen’s shares rose 10r- 5/16 to 53-1/4 while NationsBank lost 7-1/4 to 85-1/8 as market players perceived the price might be too high.

Local journalism is essential.

Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are tax deductible.

Meet Our Journalists

Jesse Tinsley

Meet Jesse Tinsley. As a certified drone pilot, this veteran Spokesman-Review photographer often can be seen capturing beautiful aerial photographs of our region. Sometimes though, the job requires getting down with the dogs.
Jim Meehan

Jim Meehan is no stranger to Zag Nation. As the lead writer covering the Gonzaga men’s basketball team, he tells the stories behind the game and gets fans a bit closer to their favorite players.
Molly Quinn

There is no artist in Spokane like Molly Quinn. Her whimsical style is instantly recognizable to readers of The Spokesman-Review. She has painted gorgeous illustrations that instantly elevate the journalism accompanying it. She brings to life the stories that defy photography. She makes our pages better.
Rob Curley

Spokesman-Review editor Rob Curley loves to talk with people and learn about their lives, whether it's a best-selling author or a stranger he meets downtown on his walk to lunch. It's that inquisitive nature combined with a playful sense of storytelling that helps make our newspaper different than most.