FINANCIAL MARKETS : Yields Drop, Stocks Rise on Job News
Long-term bond yields ended mostly lower Friday after see-sawing, confounding strategists who expected yields to rise in reaction to a government report of unexpectedly strong employment this past fall. Blue-chip stocks closed with moderate gains after profit-taking nearly halved the market’s biggest rally of the new year.
The yield of the Treasury’s main 30-year bond eased to 7.86% from 7.88% Thursday.
The report helped push the dollar to a five-month high against the yen, because of expectations it would usher in higher interest rates.
The Dow Jones industrial average, which was up more than 36 points earlier in the day, ended with a gain of 16.49 points at 3,867.41. For the week, the index was up 32.97 points.
In the broader market, advancing issues led declines 1,217 to 958 on active trading of more than 308 million shares on the New York Stock Exchange.
Analysts said the market’s rally was also surprising, coming in the face of the extremely strong employment figures. The Labor Department said the jobless rate fell to 5.4% in December, its lowest level in 4 1/2 years, as 1994 ended with the largest number of new jobs generated in a decade.
Wall Street had expected the rate to be unchanged from November’s 5.6%.
News of a stronger economy normally would have sent yields higher and stocks into a decline due to concern over higher interest rates, but after some early hesitation, the jobs data had the opposite effect amid speculation that the Federal Reserve Board, which raised interest rates six times last year to thwart inflation, would continue to keep inflation under control with further aggressive rate hikes.
“The feeling was, sure this is really bad news, but is something going to be done about it? The feeling was a resounding yes,” said Anthony Chan, senior economist at Banc One Investment Advisors in Columbus, Ohio.
“With the Mexican and Orange County crises lurking in the background, any Fed tightening may be a one-time event,” said Alan Ackerman of Reich & Co.
Ackerman said if the Fed’s hands are indeed tied by Mexico and California, he reckoned the next batch of corporate earnings could be pleasant reading for investors.
Still, the moves surprised many analysts.
“This is a difficult day for a lot of people because this is news that the market should have gone down on,” said Jay Goldinger, president of Capital Insight, a Beverly Hills-based investment firm. “It was a wild day.”
Yields on three-month Treasury bills held at 5.88%. Six-month yields slipped to 6.59% and one-year yields fell to 7.24%
Among market highlights:
* Apple Computer rose 3 1/8 to 42 on very active trading of 9.6 million shares on a published report that the company was a takeover candidate. Other high-technology stocks moving higher included Microsoft Corp., up 1 to 60 5/8, and Hewlett-Packard, up 1 3/4 to 100 3/8.
* Forest products stocks were strong, with International Paper gaining 1 5/8 to 77 and Georgia-Pacific rising 1 3/4 to 75 1/2.
* In late New York trading, the dollar was quoted at 101.38 Japanese yen, up from 100.93 Thursday. The dollar was last seen at this level in mid-August.
* Overseas stocks were mixed. In London, the Financial Times 100-share average was up 32.7 points at 3,065.5. Tokyo’s 225-share Nikkei average ended 96.65 points lower at 19,519.46 and Frankfurt’s 30-share Dax average closed down 8.56 points at 2053.92.