Stock Prices And Dollar Turn Lower --- Junk Bond Problems Unnerve Investors As Rumors Spread
A deteriorating junk bond market helped spook nervous investors into sending stock and bond prices and the dollar lower.</br></br>The stock market bore the brunt of the retreat. Takeover and brokerage stocks -- the issues that would be hurt the most by junk bond woes -- were among the worst hit. And a spate of sell programs late in the session drove the Dow Jones Industrial Average down 27.74 points to 2679.52, the first close under 2700 since Aug. 23. Retreats in the bond and currency markets weren't so pronounced.</br></br>The unraveling of the heavily leveraged Campeau Corp. was the focus for much of the day. As a series of Campeau disclosures rocked the junk bond market, worries spread about the viability of several proposed takeover deals that depend on junk bonds.</br></br>But analysts said it wasn't just the junk bond market's problems that hurt stocks. Growing concern that Friday's trade report will show exports falling short of expectations hurt the dollar, which in turn hurt bond prices. Traders said the sell-off in bonds sent stock-index futures down, triggering index-arbitrage programs in which traders purchased the futures contracts and sold the underlying stocks.</br></br>A.C. Moore, director of research at Argus Research, said that with little economic news to focus on, traders and investors are prone to respond to rumors. He also pointed out that lower-than-expected auto sales for early September, reported yesterday, may be weighing on investors' minds. He said the sluggish auto sales show an economy that may be weaker than had been thought last month, when autos were selling briskly because of incentives. "That may raise a question or two among those who are getting comfortable with the soft-landing theory," he said.