Dow Soars 27 as Traders Expect the Fed to Ease Credit
The stock market swept ahead to its highest level in nearly 20 months Friday, responding to employment statistics that raised hopes for an easier Federal Reserve credit policy and lower interest rates.
The Dow Jones average of 30 industrials rose 27.20 to 2,517.83, topping the 2,502.02 reading of May 22 that marked its previous peak since the collapse in 1987.
For the week, the average posted a net gain of 23.06.
Advancing issues outnumbered declines by more than 5 to 2 in nationwide trading of New York Stock Exchange-listed stocks.
Big Board volume totaled 229.14 million shares, compared to 223.16 million Thursday.
The Labor Department reported that non-farm payroll employment increased by 101,000 in May--only about half of the amount projected by economists at leading brokerage firms.
Texaco led the active list, up 3/4 at 49 3/4 on turnover of more than 25 million shares. The stock fell 2 1/4 points Thursday as financier Carl C. Icahn unloaded his holdings of more than 42 million Texaco shares.
Brokers were busy Friday reselling that stock to other investors.
Stock in L.A. Gear bounded up 3 1/8 to close at 55 1/8 on volume of 343,300 shares. Elliot J. Horowitz, chief financial officer of the Marina del Rey-based maker of trendy athletic shoes, noted that investors have been bullish on the company for months. For the fiscal year’s first six months, just completed, the company is expected to report sales nearly equal to the $223 million for all of last year, he added.
Horowitz also said a Business Week reporter interviewed company officials at length Thursday, and there was speculation that anticipation of a favorable article might have prompted investors’ interest.
Vons Cos. shares continued their dramatic rise, adding 2 1/8 to 23. The El Monte-based supermarket company has been the subject of speculation that its largest stockholder, Kohlberg Kravis Roberts & Co.’s Safeway Stores, might eventually launch a friendly takeover bid.
USX, meanwhile, slipped back 1 to 36 1/2 after taking a 2 3/8-point jump Thursday. News of the Texaco transaction prompted speculation that Icahn might be preparing a deal for USX, in which he has also long held a large stake.
Amgen climbed 3 3/4 to 44 3/4 in the over-the-counter market. On Thursday, the Food and Drug Administration gave the Thousand Oaks biotech firm approval to produce and sell a genetically engineered drug for treatment of anemia in kidney patients.
Sun Microsystems, another OTC issue, fell 1 1/2 to 19 1/4. The company said it expects to reporta significant decline in earnings for the fiscal quarter ending June 30.
Share prices plummeted Friday on the Tokyo Stock Exchange for the second straight session. The Nikkei 225-share index, which tumbled 285.40 Thursday, plunged 313.93 points to close at 33,667.42.
A late surge left share prices only slightly lower on the London Stock Exchange. The Financial Times 100-share index finished with a loss of 0.8 point at 2,103.4.
Credit
Long-term interest rates plunged to their lowest levels in 15 months as investors snapped up bonds in a flurry of anticipation that the Federal Reserve might ease credit after a weak U.S. employment report.
Trading started with a bang after the Labor Department reported the nation’s unemployment rate dipped to 5.2% in May from April’s 5.3%.
The report sent bond prices sharply higher, and the gains held throughout the session.
The Treasury’s bellwether 30-year bond soared 1 7/8 points, or nearly $18.75 per $1,000 in face amount. Its yield plunged from Thursday’s 8.60% to 8.43%, its lowest since March 3, 1988.
The federal funds rate reached 9.563% late in the session, down from 9.813% late Thursday.
A lower federal funds rate could entice major banks to lower their prime interest rates, a benchmark used to set interest in a variety of consumer and corporate credit.
Currency
The dollar fell sharply as U.S. unemployment data indicated a slowdown in U.S. economic growth, interest rates fell on the bond market and a Midwest bank lowered its prime rate.
“The dollar came off rather dramatically today,” said Bob Morrissey, a senior currency trader with the Bank of Boston’s New York office.
The May jobless figure showed a modest 101,000 new jobs in U.S. non-farm payrolls, half the level expected by many analysts and one sign that inflationary pressures are subsiding.
Southwest Bank of St. Louis lowered its prime rate from 11.5% to 11%, although other banks did not follow suit.
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