Wild Trading Follows Report on Job Growth
Interest rates and stock prices both surged early Friday after the government reported dramatic job growth in February. But by the close neither market seemed convinced of the report’s inference of a healthy U.S. economy.
The surprise decline in the nation’s unemployment rate to 7.0% in February from 7.1% in January suggested a strong economy, immediately spooking bond traders who have been betting on slow growth and thus lower interest rates.
The yield on 30-year Treasury bonds rocketed from an all-time low of 6.73% Thursday to 6.83% by mid-morning Friday. But then a herd of buyers rushed into the market, pushing the bond’s yield back down to 6.74% by the close.
Similarly, stock prices rocketed early in the day on hopes that a strengthening economy will be a boon to corporate profits. The Dow Jones industrial average was up as much as 35 points in the morning.
But the rally faded in the afternoon, and the Dow closed with a small rise of 5.67 points to 3,404.58. Volume on the New York Stock Exchange was 253.48 million shares, moderate by recent standards.
Analysts said the bond market’s powerful recovery from the morning selloff showed that many investors refuse to believe that any force--economic or political--will be strong enough in the months ahead to stop the trend toward lower interest rates.
“The bond market’s strength is just incredible,” said Sherman Russ, manager of the Pioneer Bond Fund in Boston. “If yields back up again, I think this same kind of (buying wave) will happen again.”
But some experts said the damage to bond market psychology from the February employment report was greater than the action in 30-year bonds suggested. Yields on shorter-term securities, for example, failed to rally as much as 30-year yields.
And yields on the shortest-term securities closed up sharply. The yield on one-year Treasury bills finished at 3.36%, up from 3.24% on Thursday.
“My sense is that the employment report really does change things for bonds,” said David Jones, economist at Aubrey G. Lanston & Co. in New York.
Yields have fallen dramatically this year largely because investors figured that President Clinton’s proposed tax hikes assured sluggish economic growth, Jones noted.
Though February’s job growth was mostly in part-time positions, Jones believes that the figures still indicate a healthier than expected economy--which is not a prescription for sharply lower interest rates.
“I think the February numbers confirm the idea that we’ve got a self-sustaining economic expansion going on,” Jones said.
At the very least, the steep rise in short-term interest rates Friday was a sign that investors see little chance of another Federal Reserve credit-easing move, experts said.
The stock market, meanwhile, failed to hold on to its early excitement over the employment report. By the close, losers topped winners by a slight margin on the New York Stock Exchange. For the week, the Dow was up 33.77 points.
“The market doesn’t know what it wants,” lamented Alan Ackerman, a veteran analyst at Reich & Co. in New York. “Traders are shifting gears like Indianapolis 500 drivers.”
However, Ackerman noted that stocks that retained their early strength Friday were mostly cyclical industrial issues that would gain from a healthier economy--as suggested by the employment report. “It looks like the cyclicals are still the place to be,” Ackerman said.
Among the market highlights:
* Industrial issues gaining sharply included Alcoa, up 1 3/8 to 69 7/8; Goodyear, up 1 3/4 to 72 1/8; Ford, up 1 3/8 to 49 1/4; 3M Co., up 1 1/8 to 107; Owens-Corning, up 1 3/4 to 45 3/8; Deere, up 1 3/8 to 54, and Paccar, up 2 to 60 3/4.
* Some transportation issues followed industrials higher. Conrail gained 1 5/8 to 57 1/8, Delta Air Lines added 5/8 to 50 5/8, and truck trailer lessor XTRA rocketed 6 to 95.
* Retailers also rebounded with the upbeat economic news. Dayton-Hudson surged 1 3/4 to 79 1/4, Sears jumped 1 3/8 to 53, May Department Stores leaped 1 3/4 to 74 1/4, and Toys R Us added 1/2 to 39 1/2.
* On the downside, health care issues suffered yet another selloff. Amgen tumbled 1 5/8 to 33 1/4, Pfizer dropped 1 5/8 to 58 7/8, PacifiCare Health slid 1 3/4 to 33 1/4, and Alza dropped 3/4 to 29 7/8.
* Among new issues, Castle & Cooke Homes made its debut at $15 a share on the NYSE, and closed at 15 3/8. The firm is a spinoff from Southland-based Dole Foods.
* Among other Southland issues, restaurant chain Sizzler slumped 3/8 to 9 5/8 after reporting disappointing quarterly earnings.
Overseas, Frankfurt’s DAX index eased 4.58 points to 1,682.82, despite news that the German central bank let interest rates fall slightly.
In London, the FTSE-100 index rallied 17.30 points to 2,922.10, a new high, on optimism about lower European interest rates in general.
In Tokyo, the Nikkei index added 58.09 points to 16,817.70.
In Mexico City, the Bolsa index leaped 32.99 points to 1,637.86, bolstered by strong demand for shares of retailer Cifra. The market’s gain for the week: 5.9%.
Other Markets
The dollar soared in heavy trading, bolstered by a small easing in German interest rates and the U.S. February employment report.
The dollar closed at 1.669 German marks in New York, up from 1.638 Thursday. It also rose to 117.60 Japanese yen from 116.75.
The dollar began climbing in European trading after Germany’s Bundesbank cut money market rates. The move, which took the market by surprise because it came a day after the central bank’s policy-making committee met and took no action, could pave the way for further easings.
Lower rates abroad make yields on U.S. securities more attractive, thereby increasing investors’ need for dollars.
With the U.S. employment report, the dollar zoomed further--because U.S. economic strength makes it more likely that interest rates here will rise later this year than fall, traders said.
Elsewhere, gold prices also advanced worldwide. On the New York Commodity Exchange, gold bullion for current delivery settled at $329.80 a troy ounce, up 80 cents from Thursday. March silver rose 1.5 cents to $3.57.
In other commodity markets, lumber futures prices climbed on the Chicago Merc as the drop in the February unemployment rate fanned expectations for a surge in new home purchases and demand for scarce wood products.
Spruce two-by-fours for March delivery surged $20.10 to $475 per 1,000 board feet, an all-time high settlement for futures prices. The previous record of $454.90 was set on Thursday.
Traders said dealers scrambled to lock in supplies for spring and summer delivery after the employment report.
Meanwhile, oil futures fell on the New York Mercantile Exchange as traders took profits after Thursday’s powerful advance. Light, sweet crude oil for April delivery fell 14 cents to $20.93 a barrel.
Market Roundup, D4
BORROWING FOR A HOME
Borrowing money to buy a home has not been cheaper since Richard Nixon was President. D3
