New Year for Investors Has a Rocky Beginning
NEW YORK -- Stocks, bonds and the dollar all stumbled coming out of the gate on the first day of trading in 1989.</br></br>The dollar tripped first in what traders said was a reaction to the artificially strong demand for the currency in the closing days of 1988. The weaker dollar, coupled with a report that indicated the economy remains strong in the face of rising short-term interest rates, sent bond prices sprawling. And after that the fall in stock prices was almost anti-climactic.</br></br>The Dow Jones Industrial Average retreated 23.93 to 2144.64 after being off nearly 40 points early in the afternoon. Computer-generated trading fueled much of the decline.</br></br>But analysts cautioned that yesterday's price action doesn't necessarily mean the financial markets have nowhere to go but down in 1989. "I think there's less here than meets the eye," said Peter Canelo, a portfolio strategist at Bear Stearns. "I don't think there's a clear direction on the economy, and there isn't any conviction about interest rates."</br></br>As 1988 drew to an end, investors were looking for signs that the economy is slowing in reaction to the Federal Reserve's steady effort to drive interest rates higher. Instead, the early evidence points to a stronger than expected economy in December that will require even more interest rate discipline. That hurts bond prices in the short run and increases the chances that when the economy does slow it could do so abruptly, perhaps falling into recession. A sharp slowdown would undermine corporate profits, the main prop for stock prices.