Growth Report Puts Spring in Stocks’ and Bonds’ Step
Long-term Treasury bond yields plunged to their lowest level in more than a month after a report of slower-than-expected economic growth eased concern that the Federal Reserve Board will raise interest rates to subdue inflation.
The news also elated Wall Street, boosting blue-chip stocks to their highest level since June 17.
The Treasury’s key 30-year bond yield plummeted to 7.39% from 7.55% on Thursday, pushing prices up 1 23/32 point, or $17.19 per $1,000 in face value. Yields and prices move in opposite directions.
Many bond strategists were elated by the Commerce Department’s report that inflation tied to the gross domestic product rose a moderate 2.9%, the same as the first three months of the year.
Concerns that the Fed would soon raise interest rates to combat inflation aggravated by economic growth practically evaporated with Friday’s data, traders said. Bond prices rose in the morning and continued to surge throughout the day.
Despite the euphoria in the bond market Friday, traders said all bets will be off if important economic data released next week points to inflation, which is feared by bond investors because it erodes the value of their holdings.
The national purchasing managers’ index will be released Monday, and non-farm payroll data comes out Friday. The employment report would have to show a slowdown in the growth of new jobs to keep the sentiment positive.
Prices of short-term Treasuries rose between 12/32 point and 15/32 point, and intermediate maturities rose 26/32 point to 1 3/32 point, the financial information service Telerate Inc. reported.
On Wall Street, the Dow Jones industrial average soared 33.67 points to 3,764.50, up 29.46 for the week.
In the broader market, advancing issues outnumbered decliners by about 13 to 5 on the New York Stock Exchange, where volume totaled 269.59 million shares, up from 246.56 million Thursday.
The rally was broad-based, and other market indexes posted substantial gains as well. The NYSE’s composite index rose 2.02 points to 252.62. The Nasdaq index of mostly smaller companies rose 9.73 points to 722.16. At the American Stock Exchange, the market value index rose 3.81 points to 437.69. The Standard & Poor’s 500 index rose 4.03 points to 458.26.
The prospect that interest rates will remain steady sparked Wall Street’s broad rally in the stock market. Economically sensitive stocks and those closely tied to interest rate fluctuations, such as banking and utility issues, were all higher.
Among the market highlights:
* Steel stocks rose along with other cyclical stocks and after LTV released a good earnings report and J.P. Morgan recommended four steel stocks. LTV rose 1 5/8 to 18 3/4, Bethlehem Steel advanced 1 to 22 1/4, Inland Steel added 1 to 38 and USX-US Steel climbed 1 1/4 to 37 1/2.
* Among other cyclical stocks, Caterpillar climbed 1 1/8 to 108 3/8, International Paper advanced 1 3/4 to 72 7/8, Whirlpool tacked on 5/8 to 50 7/8 and Alcoa added 1 3/8 to 78 1/4.
* Technology stocks also rallied, including Apple Computer, up 1 13/16 to 33 11/16; Intel, up 1 3/8 to 59 1/4, and Microsoft rose 2 to 51 1/2.
* Telefonos de Mexico’s American depositary shares led the action on the New York Stock Exchange and rose 1 to 60 3/4 along with the Mexican stock market.
* Auto stocks rose as prospects receded for an increase in consumer lending rates. The stocks were also still getting a lift from record-high earnings reports released earlier this week. Ford rose 7/8 to 31 7/8. General Motors added 1 1/8 to 51 3/8. Chrysler advanced 3/4 to 48 1/8.
* Foundation Health sank 2 7/8 to 32 1/8 after announcing that it will acquire Intergroup Healthcare in a stock swap valued at $720 million. Intergroup, which rose sharply Thursday on rumors that it would be acquired, added another 10 1/8 to 57 5/8.
Overseas markets ended the week mixed. Mexico City’s Bolsa index climbed 1.36%, or 33.12 points, to 2462.27, its highest level since it reached 2494.84 on June 6.
Tokyo stocks ended firmer, with the 225-share Nikkei average rising 201.54 points to 20,449.39. In Frankfurt, the 30-share DAX average closed at 2,146.64, up 23.83 points. Meanwhile, London’s Financial Times 100-share average fell 13.3 points to 3,082.6.
In the currency market, meanwhile, the dollar slipped back below 100 Japanese yen and declined against most other major currencies as profit taking and concerns about the U.S.-Japan trade talks erased an early boost from rallies in U.S. stocks and bonds.
The British pound rallied broadly on expectations that the Bank of England will raise its rates early next week, market participants said.
The dollar closed in New York at 99.95 Japanese yen, down from 100.10 on Thursday. The greenback was quoted at 1.583 German marks, down from 1.5910. The British pound was quoted at $1.543, up from $1.5270.
Market Roundup, D3
Selected Interest Rates Averages of daily rates ended Thursday, in percent.
Corporate AAA bonds: 8.08%
90-day CDs: 4.46%
3-month Treasury bills: 4.42%
Bank prime rate: 7.25%
Municipal bonds: 6.22%
Federal funds rate: 4.28%
Discount rate: 3.50%
*
Source: Federal Reserve Board
