Stock prices plummeted today as a new wave of interest rate worries swept Wall Street.
The Dow Jones Industrial Average of 30 stocks fell 18.36 points to 940.54. That was the biggest one-day decline for the most closely watched barometer of stock prices since Jan. 20, when it declined 20.31 points. Today's closing Dow Jones level was the lowest since Feb. 20, when it hit 936.09.
The new wave of concern about interest rates was touched off by last Friday's report from the Federal Reserve Board, the nation's central bank, that the money supply -- essentially cash in circulation and checking accounts -- jumped $6.9 billion in the week.
The increase was sharply higher than most analysts expected and convinced investors and Wall Street traders that the Federal Reserve is likely to tighten its monetary policy in an attempt to restrain money supply growth. A money supply that grows too quickly is thought by most economists to contribute to inflation. A tight money policy generally leads to higher interest rates.
Since most investors had hoped for a decline in rates soon, merely continued high rates are enought to send prices plunging. The prime rate at most major banks is 20 1/2 percent, which is nearly a record.
The federal funds rate, the interest banks charge each other for over-night loans of excess reserves, rose form just below 18 percent on Friday to about 19 percent today. Although Wall Street traders focus on the federal funds rate, Federal Reserve officials have cautioned for the last two years that the central bank concentrates on the growth of the money supply and that day-to-day fluctuations in interest rates are not a good guide to Fed policy.
Stock prices usually move in the opposite direction from interest rates, in part because high interest rates lure investors away from stocks into securities such as certificates of deposit or into money market mutual funds, and in part because high rates make it difficult for investors who have bought stocks on credit (or margin, as it is called).
Bond prices also move in the opposite direction from interest rates, and the money supply report triggered a steep decline in the bond market, too.
Marvin Katz, the assistant head of trading at the brokerage firm of Sanford Bernstein & Co., said the Friday Federal Reserve report, which came out after the New York Stock Exchange had closed, "broke the back of the market. People bailed out [of stocks] in an orderly fashion. We'll see more of the same on Tuesday."
Investors' worries about higher interest rates may be misplaced. The money supply had been growing far more slowly than the Federal Reserve targets, and the sharp jump reported last Friday may be as much due to technical factors, such as the early payment of Social Security checks, as anything else.
Misplaced or not, the decline in the stock market was broad-based.
The most active stock on the New York exchange again was Conoco Inc., which is being pursued in merger bids by three big companies: E.I. duPont de Nemours & Co., Mobil Oil Co. and Seagram Co. Conoco fell $2.50 a share to $85.25.
On the American ystock Exchange, where declining stocks outnumbered advancing ones 473 to 130, the index fell 6.37 points to 363.65.