Stocks, Bonds Rally on Jobs Report : Market Overview
* Treasury bond yields plummeted, apparently because bullish economic news raised hopes that the Clinton Administration would scale back plans to spend money on economy-boosting programs.
The yield on the Treasury’s key 30-year bond fell to 7.48% from 7.55% late Thursday.
* Stocks closed higher after a drop in the November jobless rate--the fifth straight month of declines--fueled confidence that the recovery is gathering force.
Credit
The price of the Treasury’s long-term bond, which moves in the opposite direction from its yield, rose 25/32 point, or $7.81 per $1,000 in face amount.
The Labor Department reported that the nation’s jobless rate fell to 7.2% in November from 7.4% the month before. The report also said the number of non-farm jobs rose by 105,000 last month.
The news, generally better than expected, provided evidence that the economic rebound has continued. Such news often depresses bond prices, since it makes it less likely that the Federal Reserve will lower interest rates. Lower rates benefit bonds.
Economic growth also concerns the bond market because it could lead to inflation, which devalues bonds.
Treasury security prices had little initial reaction to the report. Then they moved lower, recovered somewhat by midday and climbed in the afternoon.
“You had somewhat of a surprise reaction,” said Kevin Flanagan, a money market economist at Dean Witter Reynolds Inc.
He traced the rise in prices to a belief that the good economic report would prompt President-elect Bill Clinton to reduce his plans to spend money on job-creation programs and other economic stimulus programs.
Such spending often is viewed as leading to inflation. It also can prompt the government to sell more bonds to pay for the programs. An additional supply of bonds can temporarily depress prices of existing bonds.
Another factor boosting prices was that some traders were buying bonds to cover short positions, or bets that bonds would decline in value, Flanagan said.
In short selling, a trader borrows bonds then sells them immediately, betting their price will decline. If the bond price drops, the trader then buys bonds, pays back the lender and pockets the difference between the prices of the bonds.
In the secondary market for Treasury securities, short-term maturities rose 6/32 point to 12/32 point and intermediate-term maturities rose 15/32 point to 17/32 point, the Telerate Inc. financial information service reported.
The movement of a point is equivalent to a change of $10 in the price of a bond with a $1,000 face value.
The federal funds rate, the interest on overnight loans between banks, was quoted at 2 7/8%, down from 3% late Thursday.
Stocks
Stock prices were also bolstered by the bond market rally.
The Dow Jones average rose 12.15 points to 3,288.68, and finished the week with a 6.48-point gain.
Advancing issues narrowly outnumbered decliners on New York Stock Exchange volume of 234.96 million shares in nationwide trading, against Thursday’s 238.05 million shares.
The NASDAQ composite index rose 5.24 points to a new high of 661.60, its seventh record close in the last eight sessions.
Also setting new highs was the New York Stock Exchange composite index, which rose 1.01 points to 237.77, and the Standard & Poor’s 500 stock index, up 2.15 to 432.06.
“The economy is up and running; we’re out of the rut,” said Allen Sinai of Boston Co. Economic Advisers Inc.
“Today we have the best of both worlds,” said Gregory Nie, a market analyst at Kemper Securities. “Bonds are up and we had good economic news.”
The NASDAQ continued to outperform the blue chips, but the experts detected signs that demand for secondary shares was slowing.
Don Hays, director of investment strategy at Wheat First Securities, said the narrow margin between advancing and declining NASDAQ stocks indicated that the rally could cool off in the next few days.
“Fewer and fewer stocks are driving the rally, and that’s usually a sign that you’re getting ready for a pause,” Hays said.
Among the market highlights:
* Tyco Toys led the NYSE actives list, losing 1 7/8 to 12 7/8 after the toy maker said it would report a fourth-quarter loss of about $8 million.
* Varity Corp. rose 2 1/8 to 24 3/8 in heavy trade on Wall Street’s enthusiasm over a restructuring program that helps reduce its debt ratios and boosts earnings per share.
* Traders said Lehman Bros. cut 1992 and ’93 earnings estimates on Gap Inc. The stock was down 1 1/2 at 33 7/8.
* Among other active issues, Intelligent Electronics gained 1 3/4 to 11 5/8, and Komag shed 3 1/4 to 18 1/2.
* Colonial Cos., which sells supplemental insurance, focusing on accident, cancer and life insurance coverage, jumped 8 1/4 to 36 1/2 on the NASDAQ market on news it was being acquired by Unum Corp., the nation’s leading provider of disability insurance products with $11 billion in assets. Unum, traded on the NYSE, was up 1 3/8 to 52 1/2.
Overseas, share prices fell on the London stock exchange, with the broad-based Financial Times 100-share average losing 11.6 points to finish the week at 2,759.4.
On the Frankfurt bourse, the 30-share DAX average closed down 10.43 points to 1,522.16.
Stocks closed mixed in listless Tokyo trading. The 225-share Nikkei average was up 35.61 points on the day to 17,295.69.
Currency
The dollar ended higher against most currencies, boosted by the unexpectedly positive jobs report and jitters over an upcoming vote in Europe on economic unity.
Many dealers were technically poised for a selloff. “But the (employment) number was good enough to take it up,” one trader said.
The dollar was also boosted by concerns that Swiss voters may reject a proposal to enter the European Economic Area in a popular vote on Sunday.
“A truly negative vote might be construed as reflecting the sentiment of Europe in general, (and) as a consequence, all the European currencies would be hurt,” said John McCarthy, chief dealer at ABN-Amro Bank. “A mildly ‘no’ vote could be just the Swiss being their own irascible selves” and thus be negative only for the Swiss franc, he said.
In New York, the dollar closed at 124.93 Japanese yen and 1.593 German marks, up from Thursday’s 124.65 yen and 1.583 marks respectively.
The British pound fell to $1.560 from $1.565 the day before.
Commodities
Grain and soybean futures prices resumed their recent slide on the Chicago Board of Trade as Russia’s deepening credit problems and China’s lack of buying interest dimmed the export sales outlook.
Wheat for December delivery fell 4.50 cents to $3.72 a bushel; December corn slipped 1 cent to $2.108 a bushel; December oats fell 1.75 cents to $1.418 a bushel; January soybeans fell 2.25 cents to $5.61 a bushel.
Elsewhere, crude oil dropped below $19 a barrel for the first time since March 20 on the New York Mercantile Exchange after an early rally fizzled. Light, sweet crude oil for January delivery ended 14 cents lower at $18.94 a barrel.
Precious metals were barely changed on New York’s Commodity Exchange, with gold rising 20 cents to $335.70 an ounce and silver closing unchanged at $3.745 an ounce.
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