Closing Market Report

Star-Bulletin news services

Rate-hike worries
overshadow earnings

NEW YORK >> Wall Street waffled through an indecisive session yesterday, closing mixed as better-than-expected earnings from Apple Computer Inc. and Citigroup were eclipsed by investors' growing anxiety over interest rates.

Financial and tech shares showed particular weakness, while large drug stocks posted gains as investors sought safety in consumer staples, energy and health care, which have historically done well when rates are rising.

The market's muted reaction to earnings news did not surprise analysts, who said share prices already reflect most of the gains that were expected for the first quarter.

"The markets were too enthusiastic, too far ahead of earnings, and they had not factored in other influences -- a close election, geopolitics, interest rate changes -- and the result is this volatility," said Subodh Kumar, chief investment strategist for CIBC World Markets.

The Dow Jones industrial average rose 19.51, or 0.2 percent, to 10,397.46.

The broader indexes were mixed. The Nasdaq composite index declined 22.68, or 1.1 percent, to 2,002.17, largely weighed down by semiconductor issues. The Standard & Poor's 500 index was up 0.67, or 0.1 percent, at 1,128.84.

Buyers were also scarce in the bond market, where the yield on the price of the Treasury's 10-year note closed down 1/4 point, while its yield rose to 4.40 percent from 4.37 percent Wednesday. Two-year Treasury notes rose 1/32 point and yielded 2.06 percent, down from 2.09 percent Wednesday.

The selling was not dramatic, compared to recent weeks, but bond prices were still "moving in the wrong direction," said Brian Pears, head equity trader at Victory Capital Management in Cleveland.

"It's fair to say equity traders have become somewhat obsessed with the performance of the 10-year note," Pears said. "The macro issues, what's happening with the economy, are swamping the more micro issues of earnings for individual companies, which by and large have been fantastic."

The stock market has skidded this week as investors contrast good earnings and equity fundamentals against fears about what recent economic data will mean for interest rates. Strong retail sales and inflation worries have forced analysts to rethink the idea that the Federal Reserve will keep rates at their current lows until next year.

"I think you're seeing some struggling because people are saying 'Geez, if interest rates rise that soon, that's going to be a drag for the stock market,"' said Janna Sampson, director of portfolio management at Oakbrook Investments. "That's why you're seeing a rotation into what we'd call safer stocks. ... They have safer earnings growth, stronger balance sheets, less debt, and may be less impacted by rising rates."

Drug stocks were among the day's biggest gainers, and kept the Dow from sinking.

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