FINANCIAL MARKETS : A Surprising Slowdown for December Sales : Hint of Softening Economy Sparks 49-Point Dow Gain
Bond yields plummeted and the stock market surged on Friday after a government report of anemic December retail sales provided another hint of a slowing economy--suggesting that the Federal Reserve Board could limit further interest rate hikes.
In the bond market, the yield on the bellwether 30-year Treasury bond tumbled to a three-week low of 7.79% from 7.87% on Thursday. Shorter-term yields fell even more steeply.
On Wall Street, the Dow industrials rocketed 49.46 points to 3,908.46, the highest close since Oct. 28 and just 70 points shy of the blue-chip index’s all-time high set last Jan. 31.
The catalyst for the rally was a report showing that retail sales fell 0.1% in December, the first drop in eight months. Even though the retail sales statistic is notoriously unreliable, investors seized upon it in the wake of other recent statistics suggesting that economic growth is moderating.
A number of influential economists, who had been expecting the Fed to boost short-term interest rates by as much as 0.75 points later this month to further restrain the economy, changed their minds on Friday and predicted a smaller increase or none at all.
“The numbers caused some people to stop and re-evaluate their anticipation of the Fed’s actions,” said James Marshall, a government securities trader at Dain Bosworth Inc. in Chicago.
Bear, Stearns & Co. economist Wayne Angell, for example, predicted Friday that the Fed will hold rates steady at its Jan. 31 meeting. He had been expecting a 0.50-point increase.
Bond yields, which many traders said had already priced in at least a 0.75-point Fed hike, rallied wildly. Shorter-term yields fell most significantly: The one-year Treasury bill yield dove to 6.87% from 7.07%; the five-year T-note yield fell to 7.63% from 7.80%.
The retail sales report “really got some people off the fence, and it got them buying,” said Jay Ferguson, analyst at Ferguson, Andrews & Associates.
The stock market went along for the ride, although most major indexes posted smaller gains than the Dow. On the NYSE, advancing issues outnumbered decliners 1,664 to 647 in active trading.
Traders said stock investors were responding to falling bond yields and also to a sense of relief over the Mexican crisis, which appears to be stabilizing with the help of a major U.S. aid package.
Latin American stock markets rallied briskly again on Friday. In Mexico City the Bolsa index shot up 97.73 points or 4.6% to 2,216.55, closing the week with a mere 37-point net loss--after diving as low as 1,840 at midweek.
Brazil’s Bovespa stock index surged 6.8% Friday, while Chile’s IPSA index rose 3.2% and Argentina’s Merval index leaped 5.7%.
Among Friday’s highlights:
* Banking stocks, some of which had been hit by concern over banks’ Latin loans, rallied sharply. Citicorp rocketed 1 5/8 to 40 5/8, J. P. Morgan surged 2 3/4 to 59 7/8 and BankAmerica added 1 1/4 to 42 3/8.
* Among U.S.-traded Latin stocks, Vitro jumped 1 1/8 to 12 7/8, Grupo Tribasa added 3/4 to 12, Coca-Cola Femsa surged 1 1/8 to 24 1/8, Telmex inched up 3/8 to 36 5/8, Compania de Telefonos de Chile climbed 3 7/8 to 78, and Buenos Aires Embotelladora jumped 2 1/2 to 34.
* U.S. blue-chip stocks leading the Dow rally included AT&T;, up 1 1/4 to 49, Philip Morris, up 1 1/2 to 57 7/8, Goodyear, up 1 1/4 to 37 3/8 and Dupont, up 1 to 56 1/8.
* Other industrial stocks benefiting from expectations that interest rates may be close to stabilizing included Chrysler, up 7/8 to 52 5/8; Alcoa, up 3/4 to 89 1/8; and Scott Paper, up 1 1/2 to 71 1/2.
* Among rumored takeover targets, Quaker Oats jumped 4 1/2 to 36 1/8 after CNBC-TV commentator Dan Dorfman said Coca-Cola Co. has offered $60 a share for Quaker and been rejected. But late in the afternoon, Coke issued a statement saying that although it normally does not comment at all on takeover talk, “Dan Dorfman does not have a clue.”
In commodity trading, sugar prices plummeted in their biggest one-day drop in six years, as reports of a surge in India’s sugar production and efforts by China’s government to stem price hikes burst the market’s bubble.
Sugar prices posted a 4 1/2-year high of 15.83 cents a pound on Jan. 4, attracting massive interest from speculators. Prices had risen 40% in the past six months.
On Friday, March sugar futures fell 0.95 cent to 14.26 cents a pound.