Bad News on Jobless Front Sends Interest Rates Down; Stocks Gain
Long-term bond yields tumbled Friday to near record lows on news of unexpected weakness in the nation’s monthly employment report.
The stock market, meanwhile, closed mostly higher despite the uninspiring economic data.
The benchmark long-term interest rate--the Treasury’s 30-year bond yield--dropped to 5.92% from 6.01% on Thursday, as traders viewed the September employment report as further evidence of a sluggish economy.
At 5.92%, the yield is just above the record low of 5.86% set Sept. 8.
But traders noted that shorter-term interest rates did not fall dramatically on Friday, suggesting that many investors aren’t necessarily convinced that the business environment is worsening.
Also, most key stock indexes rose for the day. The Dow Jones industrial average added 1.11 points to 3,584.74, rallying back from a midday selloff. While stocks were helped by the slide in long-term rates, analysts noted that it’s unlikely share prices could remain at current levels without underlying investor optimism about the economy.
“The economy is not weaker. The economy is slowly but surely doing better,” argued Alfred Goldman, analyst at brokerage A.G. Edwards in St. Louis.
On the surface, the Labor Department report seemed to indicate moderate job strength.
But economists noted that the overall gain of 156,000 jobs in September, while within expectations, was concentrated in low-paying, part-time positions.
In addition, analysts interpreted a decline in the average workweek as a sign of slack demand for overtime, indicating that employers are under little pressure to hire more workers.
Still, the employment report wasn’t weak enough to spur new suggestions of another Federal Reserve Board cut in short-term interest rates. And indeed, short-term T-bill yields were largely unchanged Friday, and intermediate-term securities failed to rally as strongly as the 30-year bond.
The yield on three-year T-notes, for example, slipped only to 4.06% from 4.10% on Thursday.
Analysts said the 30-year T-bond yield’s big drop could be explained partly by the fact that the bond has become a favorite speculative tool for traders, and thus is in its own world.
On Friday, the bond’s yield tumbled just prior to the official 8:30 a.m. EDT release of the employment report. That raised concerns that some traders may have secured illegal access to the government’s data. The Labor Department said it will investigate.
In any case, economists noted that the 30-year bond yield has been stuck in a trading range around 6% since mid-September, raising questions about how much lower interest rates can go.
Next week, bond investors will be looking for more direction in two reports on September inflation: wholesale price trends will be released Thursday, and data on consumer prices Friday.
Stocks
Share prices rallied early in the day as interest rates dropped, then sold off at midday as a spate of computerized sell programs hit the market. Buyers returned toward the close.
Most stock indexes closed with small gains. The Standard & Poor’s 500 index rose 1.13 points to 460.31; the Nasdaq composite index of mostly smaller stocks added 1.78 points to 764.27.
The market’s breadth was also encouraging: Winners topped losers 11 to 8 on the Big Board and about 12 to 11 on Nasdaq.
Traders said the action indicated an overall bullishness about the economy and corporate profits, despite the September employment report.
However, experts noted that the market will be tested over the next two weeks, as third-quarter earnings reports flood Wall Street.
Among Friday’s highlights:
* Many technology stocks rebounded from a drubbing earlier in the week. Intel added 1 1/2 to 70 1/4, Compaq gained 1 5/8 to 59 1/4, Cabletron Systems rose 2 3/4 to 94 7/8, Motorola shot up 3 3/4 to 100 1/2 and Wellfleet surged 3 1/2 to 46 1/2.
* Many financial stocks responded well to the slide in interest rates. Federal National Mortgage jumped 1 3/8 to 79 3/4, PNC Financial added 3/4 to 30 7/8 and First Interstate rose 1/2 to 66 5/8.
* Utilities were weak, continuing their recent slide. The Dow utilities index fell 1.06 points to 243.80, hurt by Consolidated Natural Gas, off 1 1/8 to 51 1/8, and Panhandle Eastern, down 1/2 to 24 5/8.
Overseas, London stocks closed at a new high after a late rally. The FTSE-100 index closed up 16.2 points at 3,108.6.
In Frankfurt, the DAX index also hit a record, adding 7.97 points to 2,005.01. That was 92.92 points above last Friday’s close.
Tokyo’s Nikkei average was up 113.01 points to 20,378.64.
Other Markets
The dollar tumbled against most major currencies after the release of the September employment report. The dollar fell to 1.604 German marks in New York trading from 1.623 on Thursday. But it rose to 106.00 Japanese yen from Thursday’s 104.92.
In other markets:
* Gold rallied $3.00 to $361.50 an ounce for the December contract on New York’s Comex.
* Lumber prices rose sharply in reaction to an agreement between the Clinton Administration and environmental groups that opened up less land for logging than the timber industry had hoped for.
November lumber jumped $9.20 to $307.50 per thousand board feet at the Chicago Merc.
Market Roundup, D4
* JOBLESS RATE CLIMBS: California lost 18,200 jobs in September and saw its unemployment rate climb to 9.4%. A1.
Bond Yields: What Next?
Despite a sharp drop on Friday, the 30-year Treasury bond yield remains stuck in a trading range. The summer’s downward momentum in yields has been halted since mid-September. Jan. 1: 7.39% Friday: 5.92%
