NEW YORK -- U.S. stocks declined yesterday along with bonds after reports pointing toward a growing economy raised concern about inflation and higher interest rates.
"The bond market threw a scare into the stock market," said Walter Revis, vice president at Hamilton Investments in Gurnee, Ill. "Stocks will have a hard time recovering if the bond market stays this weak."
Stocks sensitive to changes in rates, such as banking and
financial services issues, were among the day's worst performers. Broadcast and media issues bucked the trend and gained as CBS Inc. and QVC Inc. confirmed they were talking about a merger. The transaction would create a company worth an estimated $5.5 billion.
The Dow Jones industrial average tumbled 42.09, to 3,624.96, its lowest close since April 19. Caterpillar Inc., International Business Machines Corp., Procter & Gamble Co. and Minnesota Mining & Manufacturing Co. were the biggest losers.
Stocks dropped after the Purchasing Management Association of Chicago said its June index of prices paid by manufacturers surged to 69.7 from 63.6 in May. And the Commerce Department said factory orders climbed 0.6 percent in May and rose a revised 0.2 percent in April. Moderate improvement was also reported on the consumer side, with consumer spending rebounding from an April slump to rise 0.4 percent in May and personal income growing 0.6 percent in the month.
The reports combined to send the yield on the Treasury's benchmark 30-year bond to a seven-week high of 7.62 percent, up from 7.51 percent yesterday, before it closed at 7.61 percent. Bond prices fell amid concern that the economy is expanding too fast and the Federal Reserve will soon raise interest rates for a fifth time this year.
The Fed's Open Market Committee, which sets monetary policy, will meet Tuesday and Wednesday next week. That meeting is "the most important thing right now" for stock investors, said John Brooks, director of sales and marketing at Notley Group in Atlanta.
Higher rates are bad for stocks because they encourage people to put their money in fixed-rate investments that are perceived as less risky. Rising rates also slow the economy, crimping corporate profits.
Among broader market indexes, the Standard & Poor's 500 Index fell 3.36, to 444.27. The Nasdaq Combined Composite Index closed up 1.95, to 705.96. Shares of QVC,Microsoft Corp.. Consolidated Papers Inc. and Lin Broadcasting Corp. paced the advance.
The AMEX Market Value Index gained 0.60, to 424.08.
Declining issues outpaced advancers by about 4-to-3 on the New York Stock Exchange, where 292 million shares traded hands as of 4 p.m. Trading volume climbed above the three-month daily average of 281.25 million on the Big Board.
Shares of QVC, halted for most of the day, soared $5.625, to $38, while CBS catapulted $48, to $311.
The Standard & Poor's broadcast and media index gained 168.36, to 6,809.70. Shares of Capital Cities/ABC Inc., which owns the ABC television network, jumped 75 cents, to $71.125.
Regional bank stocks were among the day's worst performers. Banc One Corp. fell 25 cents, to $34.25; Norwest Corp. dropped $1, to $26.125; PNC Bank Corp. lost 87.5 cents, to $28.875; and NationsBank Corp. gave up $1.125, to $51.375.