Investors Start Taking Stock of Their Fears; Worry Over Rates Could Trim 'Wealth Effect'
Historically, rising interest rates have hurt individuals by making two of their biggest purchases--the automobile and the family home--more expensive.</br></br>But now, with more individuals owning stock than ever before, rising interest rates are threatening family finances in a third way, one that could ultimately spell an end to the stock market-driven "wealth effect" fueling the current economic boom.</br></br>Certainly the country's red-hot housing sector has cooled somewhat, with housing starts, residential construction spending and mortgage loan applications down in recent months. But sales of new and existing homes are still running close to record levels, and auto sales are on track to set a record of more than 17 million this year.</br></br>But it is in the stock market, where the values of some high- technology companies have been driven to stratospheric levels, where interest rate jitters have been felt most strongly. Yesterday's 267- point sell-off in the Dow Jones industrial average, market strategists said, was largely attributable to fears that interest rates are headed further upward after two summer rate increases by the Federal Reserve Board.</br></br>"The rate increase and the prospect of more rate increases have cooled the equity market," said economist Ray Stone, of Stone and McCarthy Research Associates in Princeton, N.J. "Consumers will probably slow their spending."