Saturday, January 29, 2000

Stocks weaker at week's end

Investors fear rate increase

The Cincinnati Enquirer

        First the good news: A government report Friday showed the U.S. economy continuing to grow at a breakneck pace. The bad news: It likely means rising interest rates.

        More bad news: Fearful of such a rate increase, investors sold off technology and financial stocks on Friday, driving down most market indexes.

        “It really was one of those events where there was good news and there was bad news,” said Ellie Moffat, a portfolio manager with downtown's Bahl & Gaynor, which has $2.3 billion in assets under management. “It's painful in the short term but wonderful in the long term.”

        Friday's news:

        • Nasdaq Composite Index: fell 152.49, or 3.8 percent, to 3887.07.

        • Standard & Poor's 500 Index: lost 38.40, or 2.8 percent, to 1360.16.

        • Dow Jones Industrial Average: shed 289.15, or 2.6 percent, to 10,738.87. More than two stocks fell for every one that rose on the New York Stock Exchange.

        • The Enquirer 80 Index: Comprised of 80 stocks of local interest, it was down 3.33, or 1.6 percent, to 206.85. Leading decliners were General Electric Co., General Motors Corp. and Procter & Gamble Co.

        For the week, the Nasdaq lost 8.2 percent, the biggest weekly decline since Aug. 28, 1998, when Russia's economic crisis emerged. The Nasdaq dropped 9.8 percent over three days earlier this month before recovering for a smaller weekly decline.

        The S&P 500 fell 5.6 percent for the week and the Dow 4.6 percent.

        The Nasdaq had a larger decline compared to other indexes on Friday because it's heavily weighted in technology stocks, which can be more sensitive to interest rate increases. Higher interest rates make it more expensive for a young company to continue to grow through borrowing, and they make investors less willing to pay the higher prices for the stock.

        Qualcomm, whose 27-fold increase was the biggest gain in the S&P 500 last year, dropped $9.75 to $110.25, its third straight loss. The shares have fallen 37 percent this year.

        Financial stocks also are hurt with rising interest rates because higher rates discourage borrowing. That lowers banks' and financial companies' profits.

        General Electric, whose GE Capital unit is the largest nonbank finance company, fell $7.683/4 to $134. Citigroup Inc., the largest financial services company, lost $2.871/2 to $56.121/2.

        The day had its bright spots, how ever, in pharmaceutical stocks, Ms. Moffat said. Shares of those companies rallied after President Clinton avoided direct criticism of the industry's pricing practices in his State of the Union speech on Thursday.

        Indianapolis-based Eli Lilly & Co. gained $1.061/4 to $65.311/4; Merck & Co. gained $2 to $76.371/2 and Bristol-Myers Squibb Co. rose $2 to $64.25.

        “The economy looks to be in very good shape,” Ms. Moffat said. “What's a brighter spot than that?”

        Bloomberg News contributed to this report.


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