Stocks Slide on Rising Interest Rates

[Pale Blue Dot]

NEW YORK (Reuters) - Stocks ended sharply lower on Tuesday as rising bond yields offset strong economic data about the services sector and cast doubts upon an economic rebound.

Stock markets were trading in the red for most of the session, but a tepid response to a government's auction of Treasury notes spurred a late afternoon sell-off.

The sale of $24 billion in three-year U.S. Treasury notes drew a weak reaction from investors, driving the yield of the benchmark 10-year note up to 4.43 percent as its price fell more than a full point. Investors fear that higher borrowing costs could crimp a pickup in the economy.

The auction results also raised concerns that the Treasury's auctions of five- and 10-year notes later this week may also face poor demand.

Now what did * say about the stock market in his press conference?

[RamboLiberal]

1. Worst day in 2 1/2 months

Investors shaken by a terrorist attack overseas and a turnaround in interest rates sent stocks sharply lower Tuesday, propelling the Dow Jones industrials down nearly 150 points in their worst day in 2 1/2 months.

Downbeat outlooks from Gillette and Costco added to the market's gloom, but analysts said much of the selling was due to a growing realization that interest rates are again climbing.

"Portfolio managers have decided to back away. They have lost their nerve," said Hugh Johnson, chief investment officer at First Albany. "They are asking: `Will the rise in interest rates impact consumer spending and business spending?' It may very well."

Analysts also attributed Tuesday's losses to a powerful car bomb explosion outside the Marriott hotel in downtown Jakarta on Tuesday. The explosion, an apparent suicide attack, killed 13 people and wounded 149 -- including two Americans.

http://sfgate.com/cgi-bin/article.cgi?f=/news/archive/2003/08/05/financial1512EDT3412.DTL

[section321]

2. Interest Rates may turn out to be a real problem.

If they keep creeping up watch out for the housing numbers for August to look really bad.

For years house prices have been climbing and climbing to obscene levels (at least in LA). Realtors are selling a payment, not a price. You can make the payment cause interest rates are so low. Now that mortgagte rates are creeping up people won't be able to make that payment. Demand will drop. Prices are "sticky" so they will take a while to fall. In the interim housing sales will fall hard.

Of course I could be out to lunch......

also, higher rates on Treasuries = higher deficits in the future. The more it costs to borrow, the more the Federal Govt will need to spend on interest payments.

Thanks Shrub.
:mad:

[0007]

3. John Snow & Don Evans

having been jumping up and down like yo yo's telling everybody that will listen that America is back on it's feet. LOL!!