Stocks Advance as Jitters Over Inflation Calm
A mild inflation reading revitalized financial markets Friday, with stocks staging a broad rally as long-term interest rates moved back below 7% for the second time this week.
Technology and smaller-company issues ended a weeklong slump, boosting the Nasdaq market and other related indexes back into record territory.
The Dow Jones industrial average rose 43 points to 5,518.14 after retreating several times from gains of more than 50 points. For the week, the barometer of 30 big U.S. companies gained 40.11 points.
The Dow and broader measures have been gyrating in the last week, spurred by a procession of mixed signals on inflation and by rising bond yields. But on Friday, stocks surged in the morning and then steadied, holding most of their gains through the close.
Before the stock market opened, the government reported a surprisingly small increase in wholesale prices for April. Bond prices rallied, sending the yield on the 30-year Treasury bond--a benchmark rate that can affect corporate borrowing costs and consumer spending--tumbling to 6.92% from 7.01% on Thursday.
The Labor Department said the rate of wholesale inflation was 0.4% in April. But excluding the volatile food and energy components, the so-called core rate of inflation was up only 0.1% in April. That news contrasts with recent reports indicating rapid economic growth and increased consumer spending power.
As falling bond yields reinvigorated stocks, smaller issues again took the lead, as they have for most of the last month.
Small company stocks are “exploding because investors realize that real growth is in companies that are on the cutting edge of technology and biotechnology,” said Arnold Owen, trader at Kaufman Bros. in New York.
The Nasdaq composite index and the Russell 2,000 index of mostly smaller stocks both set new highs, recouping losses caused by recent profit-taking. The Nasdaq index jumped 14.94 points to 1,202.76. The Russell rose 3.52 points to 351.15.
Advancing issues outnumbered decliners by 17 to 7 on the New York Stock Exchange and by 24 to 16 on Nasdaq, in active trading.
Among Friday’s highlights:
* Among cyclical issues that are sensitive to the health of the economy, Boeing rose 2 1/8 to 79 3/8, United Technologies gained 1 7/8 to 110 1/8 and Alcoa added 1 1/4 to 65 7/8.
* The technology sector was boosted by another strong earnings report from an industry bellwether: Cisco Systems, up 2 1/4 at 55, announced late Thursday that its profit rose 84% in its fiscal third quarter. Other technology winners included Hewlett-Packard, up 4 1/4 to 108 1/2 and Computer Associates, up 3 3/8 to 74 7/8.
* Many financial stocks jumped as interest rates fell. BankAmerica leaped 2 1/8 to 75, SunAmerica rose 1 1/2 to 56 1/8 and brokerage Charles Schwab shot up 1 5/8 to 24 3/8.
* Bally Entertainment gained 1 1/2 to 23 5/8 amid renewed speculation that the casino company may be close to being sold.
Overseas, Tokyo’s Nikkei-225 stock average edged higher and Frankfurt’s DAX index ended slightly lower. In Mexico City, the Bolsa index was up 1.1% to 3,216.14.
In U.S. commodities trading, energy prices rose on reports of refinery problems as well as on continued uncertainty over the outcome of discussions to allow Iraq to sell millions of barrels of crude oil to buy food and medicine.
In other markets, grain futures prices sank after rain in Kansas caused traders to ignore a neutral monthly crop report from the Department of Agriculture. July wheat fell 17 cents to $5.80 a bushel at the Chicago Board of Trade.
The dollar shook off its weakness against the Japanese yen earlier in the week, racing higher after the price report was released. The dollar was trading at 105.45 yen, up from 104.72 on Thursday.
Market Roundup, D4
