Stocks, Bonds Rebound After Jobs Report
Stocks and bonds staged strong rallies Friday after the May employment report showed a healthy economy free of major inflationary pressures.
A surging dollar and falling commodity prices also gave the markets a lift.
Interest rates initially soared and equities fell in early trading after the Labor Department reported that the nation’s unemployment rate plunged to 6% in May, from 6.4% in April. The rise was triggered by anxiety that the lower jobless rate was a signal of stronger economic growth, which can create inflationary pressures. Bolstering that view, the report also said that average hourly wages rose to $11.11 from $11.05, a sizable increase.
Inflation can diminish the value of bonds, which pay a fixed rate of interest.
However, it began recovering as investors took a closer look at the data. The report showed a smaller-than-expected increase in the number of workers added to non-farm payrolls, with only 191,000 new hires last month.
The bellwether 30-year Treasury bond yield ended the week at 7.27%, down from 7.35% at Thursday’s close. Its price, which moves in the opposite direction, rose 25/32, or $7.813 per $1,000 of face value.
With Treasury prices rising for the third consecutive day, strategists said investors were taking a break from the bear market that has hammered bond prices in recent months.
The Dow Jones industrial average followed the bond market higher, ending 13.23 points higher at 3,772.22. The blue chip indicator finished the week with a gain of 15.08 points. Advancing issues outnumbered decliners by about 12 to 7 on the New York Stock Exchange, where 270.38 million shares changed hands.
Broad-market indexes also moved higher. The NYSE’s composite index rose 1.26 to 254.34. The Nasdaq index of mostly smaller firms rose 2.70 to 742.20.
In the currency market, the dollar advanced against other major currencies, rising to a two-week high against the German mark.
The dollar was quoted at 1.670 marks and 105.30 Japanese yen in late New York trading, up from 1.654 marks and 104.85 yen Thursday.
Analysts said a decline in commodities prices, seen in a 1% drop in the Commodities Research Bureau’s futures index, helped buoy bond prices.
The CRB index of 21 futures closed at 232.05, down 2.30 points for the day.
Analysts said lower soybean and crude oil prices pressured the index, which is a closely watched inflation barometer. But the pressure was probably temporary because it was a technical correction, they said. Gold lost $3.50 an ounce to close at $380.70 on the Comex.
Among the market highlights:
- Retailers stumbled for the second day after reporting lackluster May sales Thursday. The Gap lost 2 1/8 to 39 7/8. J.C. Penney fell 1 1/2 to 48 1/4. But Sears bucked the trend, rising 1 to 51.
- Food stocks rose on analysts’ upgrades and takeover speculation. Kellogg rose 2 3/8 to 55 5/8 after CS First Boston upgraded the stock to “buy” from “hold,” saying the company should benefit from an improved domestic cereal business. Analyst Michael Mauboussin also set a share price target of 66 to 67.
- Kellogg pushed other food stocks higher. General Mills rose 1 1/8 to 56 3/8; Quaker Oats advanced 2 1/2 to 70 3/8.
- Sara Lee rose 1/2 to 22 3/4 after Goldman Sachs upgraded the stock to “buy” from “hold,” saying earnings should improve gradually in the next year.
- Auto stocks fell after General Motors Corp. announced it would convert some cumulative stock into common shares. GM lost 1 1/2 to 52; Chrysler fell 1 1/4 to 47 1/2; Ford declined 5/8 to 56 5/8.
- IDB Communications led in volume in Nasdaq trading, falling 5/16 to 8. The company said it is confident of its 1994 first-quarter results as reported to the SEC, and said it will cooperate with an SEC investigation of the company.
In overseas markets, Germany’s 30-share DAX average ended 18.69 points higher at 2,148.39, while London’s Financial Times 100-share average ended up 17 points at 2,997.8.
Tokyo’s 225-share Nikkei average fell 54.81 points to 20,954.19 and Mexico City’s Bolsa index ended 18.92 points higher at 2,464.98.
Market Roundup, D4
