FINANCIAL MARKETS : Stocks Soar on Signs of Inflation-Free Growth : Markets: The Dow gains 44.75 while the dollar rises against the mark and the yen. Bond rates take a dive.
New signs that the economy is expanding without pushing up prices on goods and services sent stock prices soaring and long-term bond yields tumbling on Friday, in what some analysts said could be a turning point in the markets’ obsession with inflation.
In the bond market, the yield on the Treasury’s bellwether 30-year bond plummeted to 7.91% from 8.02% on Thursday, and yields also sank on long-term municipal and corporate bonds as investors rushed to buy.
Moreover, the classic inflation hedges--gold and silver--continued their week-long plunge as investors bailed out. A slump in oil prices further dampened inflation concerns.
In the stock market, the Dow industrials rocketed 44.75 points to 3,745.62 in a late rally, closing the week up a net 37 points.
The rallies in bonds and stocks stunned many market players, because they followed the government’s report early Friday of an unexpectedly strong gain in jobs in November.
Rather than focus on the number of jobs created, traders said bond investors were cheered by another aspect of the employment report, which showed a drop in hourly wages and in the average workweek, both of which are anti-inflationary.
What’s more, in another report, the government’s chief forecasting gauge of future economic activity pointed in the other direction, falling in October for the first time in 15 months.
“The conclusion, at least for today--and it’s only tentative--is that the economy is going to slow to a no-boom, no-bust, sustainable, non-inflationary pace,” said Hugh Johnson, chief market strategist at First Albany Corp.
Analysts said they were encouraged that long-term bond yields fell even though short-term rates rose again. A renewed rise in short rates this week suggests that investors believe the Federal Reserve Board may raise interest rates at least one more time to restrain the economy.
The decline in long-term yields, meanwhile, may indicate that more investors believe the Fed is within reach of its goal of containing inflationary pressures while still allowing for moderate economic growth.
“I wouldn’t be brave enough to say that we might have peaked” in bond yields, said Andrew Brenner, senior trader at Nikko Securities Co. International. “But we’re certainly trading well even in the face of a potential Fed (rate increase).”
In another positive sign for stock and bond markets, the dollar surged, rising to a three-month high against the German mark and a seven-week high against the Japanese yen.
The dollar ended the week in New York at 100.61 Japanese yen, up from 99.34 late Thursday. It was the currency’s first close above 100 yen since Oct. 11.
The dollar also closed at 1.580 German marks, the best finish against that currency since Aug. 31, and up from 1.573 Thursday.
Continuing strength in the dollar could lure foreign investors back to U.S. stocks and bonds, because their U.S. holdings automatically appreciate if the dollar is rising.
The big losers Friday were key commodities. As inflation concerns have ebbed, gold and silver have tumbled this week.
On the New York Commodity Exchange, December gold futures sank $3.10 to $375.50 a troy ounce. The price fell $9.10 for the week.
Silver prices staggered to one-year lows. March silver futures sank 22 cents to $4.77 an ounce on Friday.
In energy markets, crude oil futures plunged to a seven-week low after 28 Pennsylvania counties backed away from using a new gasoline aimed at reducing air pollution.
The prospect of reduced demand for the cleaner-burning fuel triggered a 7% drop in gasoline futures and pulled crude oil futures drastically lower. January oil futures plummeted 83 cents on the New York Merc, to $16.99 a barrel, the lowest since Oct. 14.
As for the stock market, many analysts warned against too much euphoria, even if bond yields continue to decline. First Albany’s Johnson and others said the market had been poised to rebound after losing substantial ground last week, and that technical factors, like program trading, were responsible for much of the market’s gains Friday.
Advancing issues had a solid 3-to-2 lead on decliners on the NYSE, but volume was only moderate at 285 million shares.
“Stock investors are very, very tentative,” Johnson said. “The level of confidence is not high.”
Among Friday’s highlights:
* Quaker Oats jumped 2 3/8 to 62 3/4 on rumors that Coca-Cola will tell the Securities and Exchange Commission that it has bought more than 5% of Quaker’s stock. Neither Quaker nor Coca-Cola officials were available for comment.
* ITT gained 3 1/8 to 80 1/8, boosted by a PaineWebber upgrading.
* Intel rose 1/4 to 62 7/8, recovering from two days of sharp losses amid concerns about problems with its Pentium computer chips.
* Amgen fell 1 1/4 to 56 3/4 and Synergen rose 1/64 to 9 3/64 after Amgen revised its antitrust application to acquire Synergen, postponing the acquisition until Dec. 15 from Dec. 3.
Overseas stocks closed mostly lower. In Mexico City, the Bolsa index fell 53.86 points to 2,537.48 on renewed worries about civil unrest.
London’s FTSE-100 index lost 22.3 points to 3,017.3, while Frankfurt’s DAX index eased 8.08 points to 2,038.51. Tokyo’s Nikkei index was off 15.30 points to 18,998.30.
* MORE JOBS
U.S. jobless rate hits four-year low. But leading indicators and factory orders decline. A1
