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 news of unexpectedly strong job growth in November and December.
Meanwhile, the stock market closed with moderate gains after profit-taking nearly halved the biggest rally of the new year. And the dollar, reacting to Friday’s employment report and to Russian unrest, jumped to a five-month high against the yen.
The Dow industrials, up more than 36 points early in the day, ended with a gain of 16.49 points at 3,867.41 in active trading. For the week, the Dow rose 32.97 points.
In the bond market, the yield on the Treasury’s 30-year bond eased to 7.86% from 7.88% Thursday, while shorter-term yields were mixed and little changed overall.
Bond yields initially jumped after the Labor Department said the nation’s jobless rate fell to 5.4% in December, its lowest level in 4 1/2 years. Wall Street had expected the rate to be unchanged from November’s 5.6%.
News of a robust economy normally would be expected to send bond yields higher and stocks into a decline over concern about higher inflation and further credit-tightening moves by the Federal Reserve Board.
But as trading wore on Friday, bond yields fell back. Traders said the market appeared to be embracing the idea that the Fed will indeed raise short-term interest rates further, but that it won’t take many more rate hikes to finally slow the economy’s pace. The Fed raised rates six times in 1994.
“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, economist at Banc One Investment Advisors in Columbus, Ohio.
Alan Ackerman, analyst at Reich & Co., said some investors also seem to believe that the Fed will be restrained in further rate hikes because of other concerns. “With the Mexican and Orange County crises lurking in the background, any Fed tightening may be a one-time event,” he said.
Still, the markets’ positive tone Friday surprised many. “This is a difficult day for a lot of people because this is news that the market should have” disliked, said Jay Goldinger, head of investment firm Capital Insight.
Further confusing the picture was another selloff in gold--hinting at waning inflation concerns. Near-term gold futures dove $4.20 to $371.20 an ounce on the Comex.
Among market highlights:
* In the broad market, advancing issues led declines 1,217 to 958 on the NYSE, though many stock indexes were up only slightly. The S&P; 500 added 0.34 point to 460.68.
* Industrial stocks led the rally, which analysts said was a sign that many investors believe the economy’s expansion will be prolonged, boosting industrial companies’ earnings. Alcoa soared 2 1/2 to 87 5/8, International Paper gained 1 5/8 to 77, Deere leaped 1 7/8 to 67 1/4 and Dow Chemical surged 2 to 69 7/8.
* Apple Computer soared 3 1/8 to 42 on renewed rumors that the firm is a takeover target.
In currency trading, the dollar jumped to 101.38 Japanese yen in New York, up from 100.93 Thursday, as the U.S. economy’s strength and Russian unrest steered more investors to the buck.
Overseas stocks were mixed. In London, the FTSE-100 index rose 32.7 points to 3,065.5, but Tokyo’s Nikkei-225 index slid 96.65 points to 19,519.46 and Frankfurt’s DAX index eased 8.56 points to 2,053.92.
In Latin America, Mexico City’s Bolsa index dropped 19.17 points to 2,253.93, and nervous selling continued in Brazil and Argentina, where key stock indexes fell 5.2% and 2%, respectively.