Bond Yields Fall on Fed Outlook as Stocks Slump

Treasury bond yields tumbled Thursday on fresh optimism that the economy may be slowing to a pace that will keep the Federal Reserve on hold.

But the stock market didn’t take much solace in bonds’ rally, as some major tech names slumped on earnings concerns.

On Wall Street the Nasdaq composite index lost 63.11 points, or 1.6%, to 3,877.23, after gaining 81.38 points on Wednesday in the wake of the Fed’s decision to hold interest rates steady.

The Dow industrials fell 129.75 points, or 1.2%, to 10,398.04 on Thursday, after rising 23.33 points on Wednesday.

Losers had a 22-to-18 edge over winners on Nasdaq, while the two sides were about evenly matched on the Big Board. Volume picked up from recent days.

With one day to go in the first half, the Nasdaq index is down 4.7% for the year while the Dow is down 9.6%.

Earnings warnings from some “new-economy” companies set a poor tone for the tech sector Thursday. Computer services firm Unisys plummeted $8.38 to $14.75 after saying weaker orders will cut into earnings.

SCM Microsystems, a maker of security software, slid $35.69 to $53.63 after saying it expects second-quarter net income to be half what was expected. The company said demand for certain PC products has slowed.

In the telecom sector, wireless phone makers saw their stocks hit on concerns about future sales.

Telecom stock weakness also drove major European markets lower on Thursday. The German market sank 2.6% as Deutsche Telekom tumbled on rumors it may bid for Sprint. Sprint’s U.S. shares rose $2.96 to $55.75 while DT’s U.S. shares fell $5.38 to $54.56.

Meanwhile, in the U.S. bond market, the 10-year Treasury note yield slid to 6.04% from 6.11% on Wednesday. The 2-year T-note fell to 6.36% from 6.49%.

“The mood in the [bond] market is very good,” said Kevin Kennedy, money manager at SSB Citi Asset Management. “The Fed’s statement [after its rate decision Wednesday] didn’t show the same level of concern about the growth of the economy and inflation as in the past.”

Among Thursday’s highlights:

* The sell-off in tech dragged Cisco Systems down $2.38 to $61.19, Oracle down $2.06 to $80.88 and BMC Software down $3.44 to $35.50. Also, Compaq tumbled $2.81 to $25.69 after a Salomon Smith Barney analyst cited concerns that a buildup of unsold PCs will hurt second-quarter sales.

But some recently hot tech issues continued to surge, including Anaren Microwave, up $17.75 to $136.75, and Keithley Instruments, up $8.50 to $83.06.

* Among “old-economy” names, Goodyear dropped $2.33 to $21 after warning of weaker earnings in part because of disappointing sales.

* On the plus side, Nike rose as high as $42.25, then closed at $39.50, up 41 cents, after reporting earnings that matched estimates.

Drug giant Eli Lilly surged $14.43 to $101.63 after saying its experimental drug to treat advanced blood infections shows promise in reducing deaths.

* Executive recruiter Korn/Ferry International jumped $4.31 to $32.50. Analyst Arnold Ursaner of CJS Securities said investors are finally taking notice of Korn/Ferry’s strong financial position. The firm earned $30.8 million in fiscal 2000 compared to $17.4 million the prior year. Ursaner expects the stock to climb to the mid-$40s range within 12 months.

Market Roundup, C6-C8