Stocks erased substantial early gains this
afternoon as investors, made nervous by a warning from a Federal
Reserve official that the economy could not continue to grow at its
current pace, sold their holdings and took profits.
As the market was ready to close the first trading session of the new year, the Dow Jones industrial average was up
2.84 at 9,184.27. The blue-chip index had gained as much as 168.64
to 9,350.07 this morning, threatening to challenge its record
closing high at 9,374.27 last Nov. 23. The blue-chip index finished
1998 with a gain of 16.1 percent the fourth straight year that it
rose 15 percent or more.
Broader stock indexes turned mixed this afternoon after also
putting in a strong morning.
Stocks opened higher as buyers descended at the opening bell,
hoping to profit from investors putting year-end bonuses and cash
from other sources to work in the new year.
But they retreated in early afternoon following a speech by
Atlanta Federal Reserve Bank President Jack Guynn.
Addressing the Atlanta Rotary Club, Guynn warned that the
"institutionalization of unrealistic expectations" could have a
negative impact on the U.S. economy. He warned that the economy's
recent performance is exceptional, and that "consumers,
businesses, investors and policymakers should not proceed as
though" it could keep growing at its current pace. "Such a
delusion could have real repercussions for the U.S. economy."
Barry Hyman, senior equity analyst at Ehrenkrantz King Nussbaum,
said investors are also worried that Brazil's new government, which
met for the first time today, will fall short of the ambitious
economic goals it agreed to in order to receive a $41.5 billion
credit line from the International Monetary Fund and other lenders.
If the Brazilian government fails to comply meet the goals,
"that immediately brings to mind the specter of the devaluation of
the Brazilian real, which is extremely negative for the markets,"
Computer stocks opened stronger but gave up their gains, ending
mixed. America Online shares fell sharply on big volume on the New
York Stock Exchange. Traders said that was because of a last-minute
surge to 160 on Thursday. The stock was added Friday to the
Standard & Poor's 500 composite index.
Transportation stocks were lower as oil prices gained. The Dow
Jones transportation index lost nearly 1 percent.
Investors brushed off a new report showing a slowing economy.
The National Association of Purchasing Management said
manufacturing activity slowed in December for the seventh straight
month, declining at a faster rate than economists had expected.
The NAPM's monthly index of business activity fell to 45.1
percent last month, down from 46.8 percent in November. Any reading
under 50 percent is a sign of contraction in the industrial sector.