Markets hammered by rate fears

Starting last night, U.S.
Federal Reserve Board Chairman
Alan Greenspan warned about the
danger of owning over-valued
stocks while inflation seemed to
be looming. Overseas markets
dropped as we slept and the
prophecy was proven correct this
morning by a shocking report: the
U.S producer price index. Plus
Canada’s inflation numbers were
released, and they showed a strong
increase.

The U.S. PPI report shows
prices paid to factories, farmers
and producers were above initial
estimates, rising by 1.1%, the
highest percentage increase in
nine years. Canada’s equivalent
report showed that inflation rose
to 2.6% last month, its highest
increase since the mid-90s.

Consequently, North American
markets tumbled. The Dow slipped
below 10,000 at one point, then
recovered some lost ground late in
the day to close at 10,016, a 2.3%
percentage drop from the opening
bell. Losers on the NYSE outplayed
winners by a 4-to-1 margin. Nasdaq
also shed some big weight, 2.7%,
or 76.52, to close at 2730.32, and
the S&P lost 2.5%, or 36.33 to
1264.09.

There wasn’t a sector on the
TSE that was immune to the selloff.
It closed down 85.17 points at
6884.48. The ME also dropped 31.49
to 3,629.41. The VSE was off by
3 points in late trading, and the
lone riser was the ASE, which was
up 11 points during the upheaval.

Interest rate-sensitive
Internet, bank and brokerage stocks
were especially squeezed.
American Express shares fell
as much as US$ 7 5/16 to 134 1/2
at one point, and J.P. Morgan
was off by US$5 7/8 to $105, for
example.

Meanwhile, U.S. 30-year treasury
bond prices started to jump a bit,
and the yield dropped as investors
looked for safer ground.

Were it not for a few good
third-quarter earnings reports,
the slide would have been more
pronounced. Sun Microsystems Inc.
gained US$3 1/2 to $93 7/16, and
Microchip Technology Inc. was
up US$5 1/2 to US$56 11/16 on high
hardware sales.

Third-quarter corporate profits
aside, many analysts are predicting
the Fed will raise its key rate by
a quarter point on Nov. 16, and
some say today’s slide could
continue into next week.