STOCKS : Jobless Data Buoys Market; Dow Up 25.74
Stock prices rebounded Friday, in the slowest trading of the year, with traders encouraged by a government employment report showing underlying strength in the economy.
The Dow Jones index of 30 industrials climbed 25.74 to 2,904.95, finishing the week with a net gain of 24.26. The index fell 32.42 Thursday.
Advancing issues outnumbered declines by about 8-to-5 in nationwide trading of New York Stock Exchange-listed stocks, with 851 up, 537 down and 566 unchanged. But Big Board volume dropped to 111.73 million shares from 128.32 million Thursday and the lightest total since a 77.61 million-share day on Dec. 26.
Analysts had expected a quiet session because many traders were taking time off after Independence Day.
Stocks rallied on the surprisingly large upward revision in non-farm jobs for May, which showed payrolls increasing by 356,000, compared to the 164,000 previously reported. Analysts said traders were apparently more focused on the prospects of better corporate profits than on the diminished chances of an interest rate cut.
“That (May) revision eliminated the chance of any near-term Fed easing,” said MMS International equity analyst Robert Walberg. But investors looked at the positive aspects of the jobs report, which indicated that there is still some strength in the economy.
“The stock market had gotten a little worried about second-quarter earnings reports, and so it interpreted (the revision) as positive,” said Jack Solomon, technical analyst at Bear, Stearns & Co.
Even so, the strength in the market was centered in recession-resistant firms, such as food and drug stocks. General Mills rose 1 7/8 to 90 1/2, Pepsico gained 2 1/8 to 79 7/8, Philip Morris jumped 1 3/4 to 49 1/4 and Amgen added 1 3/4 to 79 3/4.
Some industrial stocks were also strong, including Alcoa, up 2 3/8 to 66 1/2; Phelps Dodge, up 2 to 64, and Exxon, up 1 to 47 3/4.
Other market highlights:
* McDonnell Douglas jumped 2 1/2 to 43 3/8, on apparent optimism about the company’s strong shipments of MD-80 aircraft in the second quarter. McDonnell rose 1 7/8 on Thursday.
* Shoe stocks were big gainers. K Swiss rose 1 3/4 to 26 1/4, Nike jumped 2 to 80 and Stride Rite rose 2 7/8 to 30 3/8. But LA Gear inched up just 1/8 to 28 5/8.
* Mack Trucks added 1 1/4 to 6 1/2. Renault of France, which owns about 44.5% of Mack, announced plans to make a $6-a-share bid for the rest of the stock.
* Voicemail company Digital Sound of Santa Barbara, which plunged early in the week on disappointing earnings news, slipped 1/8 to 4 1/2. Azusa-based Optical Radiation lost 1 to 32 1/4, on concern about potential problems with the company’s new theater sound technology.
Stock prices on the Tokyo Stock Exchange closed slightly higher in thin trading. The Nikkei average gained 93.45 to close at 32,445.12. In London, stocks closed higher, buoyed by a good performance on Wall Street. The Financial Times 100-share index closed up 8.6 at 2,340.0.
In Frankfurt, West Germany, the DAX index of 30 leading shares closed at 1,932.80, up 18.62 in another strong rally.
CREDIT
Bond Prices Slide on Interest Rate Fears Government bond prices plunged on the news that the nation’s unemployment rate dropped in June, making it unlikely that the Federal Reserve will ease interest rates soon.
The Treasury’s key 30-year bond fell 1 1/8 point, or $11.25 per $1,000 in face amount. Its yield increased to 8.50% from 8.40% late Thursday.
Traders bid bond prices lower in reaction to the unemployment report. William Sullivan, analyst at Dean Witter Reynolds, said the report “showed a bit more buoyancy in the labor force than the market had anticipated.”
News of a stronger economy makes it less likely that the Federal Reserve will lower interest rates. Lower rates benefit fixed-return investments such as bonds.
Gib Clark, chief bond trader for Daiwa Securities Inc., said the unemployment report capped a week of figures that were disappointing to the bond market, including a report showing auto sales were stronger than expected.
“It kind of scotches the thought of Fed easing,” he said.
In addition, Sullivan said, the bond market is under price pressure as it faces the auctions of several major new bond issues next week, including $5 billion worth of 30-year bonds by the Resolution Funding Corp., the federal agency that raises money for the savings-and-loan bailout.
Bond prices often soften temporarily as the market anticipates potential difficulty in digesting new issues.
The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.25%, up from 8% late Thursday.
COMMODITIES
Grain and Soybeans Continue to Drop Prices of grain and soybean futures plunged for a second straight day as more weather forecasters predicted ideal weather next week for Midwestern crop development and winter wheat harvesting.
On other commodity markets, pork futures fell sharply, copper climbed, precious metals slipped and energy futures were mixed.
On the Chicago Board of Trade, wheat futures settled 5.50 to 10 cents lower, with the contract for delivery in July at $3.0925 a bushel; corn was 3.50 to 8.25 cents lower, with July at $2.80 a bushel; oats were 4.50 to 5 cents lower, with July at $1.31 a bushel, and soybeans were 8 to 10.75 cents lower, with July at $6.19 a bushel.
The selloff extended Thursday’s steep losses in the corn and soybean markets as it triggered waves of selling by speculators.
Earlier this week, some private forecasters were predicting hot, dry weather for the western and southern reaches of the Corn Belt.
But by Friday, “they’re all saying the weather’s going to be mild with good rain in the next week or so, and that is the ball game,” said Victor Lespinasse, an assistant vice president in the grain trading division of Dean Witter Reynolds Inc.
Pork futures tumbled on the Chicago Mercantile Exchange on selling linked to recent high hog slaughter figures and sluggish retail demand, especially for bacon.
CURRENCY
Dollar Mixed After Climbing Overseas The dollar finished mixed on domestic currency markets after closing higher overseas following the release of the better-than-expected U.S. unemployment report.
Because the unemployment report suggested that U.S. interest rates won’t drop soon, some dollar traders anticipated that more foreign investors are likely to buy U.S. bonds soon. That would mean more foreign buying of dollars, and thus a stronger currency.
The dollar rose overseas but turned mixed when trading shifted to the United States. Dealers said, however, that the much-anticipated employment report failed to move the market significantly and activity was relatively thin.
In Tokyo, the dollar closed at 150.95 yen, down 0.05 yen from Thursday’s close. Later in London, the dollar was quoted higher at 151.00 yen. In New York, the dollar settled at 151.70 yen, up from 150.57 yen on Thursday.
