News of Tame Prices Boosts Stocks, Bonds
Another mild reading on inflation reinforced optimism on Wall Street, sending interest rates lower Tuesday and boosting many leading stock indicators further into record territory.
The Dow Jones industrial average rose 42.11 points to 5,624.71, breaking above the 5,600 mark for the first time in four weeks as the blue-chip sector continued to show renewed vigor.
The Dow is now about 65 points shy of its all-time high, having rebounded about 280 points, or more than 5%, since last week, when it slid below 5,350 on worries about inflation and increasingly competitive bond yields.
The broader market also rose. Major indexes padded Monday’s records in brisk trading after bonds rallied on two reports suggesting than earlier signs of rising consumer spending power have not translated into higher inflation.
The Labor Department reported that the core rate of consumer inflation, which excludes the volatile energy and food segments, rose only 0.1% in April, the smallest increase this year. Separately, the Commerce Department reported that retail sales fell by 0.3% in April, the first setback in five months.
Combined with Friday’s news of a mild increase in wholesale prices during April, the reports bolstered hopes that the inflation-leery Federal Reserve won’t need to raise interest rates to slow the nation’s business activity. The Fed’s policy makers meet again next week.
“Those two numbers added a degree of comfort that wasn’t there before,” said Thom Brown, market strategist, Rutherford, Brown & Catherwood in Philadelphia. “There’s still two camps of opinion out there, but the tide has swung toward the unconcerned camp.”
After the new reports came out, bonds rose for the third straight session, with the yield on the 30-year Treasury bond--a benchmark rate used to set the interest on many types of loans--dipping to about 6.84% from 6.90% late Monday.
Stocks, which often rise with bonds because lower interest rates mean cheaper corporate borrowing costs, followed the Treasury market higher.
Technology and speculative issues continued their recent rally, lifting the Nasdaq market and the Russell 2000 list of smaller companies to new highs for the third straight session. The American Stock Exchange’s market value, which is also dominated by more speculative issues, broke above 600 for the first time en route to its second straight record close.
The Nasdaq composite index rose 12.62 to 1,234.49 and has now risen more than 12.5% in slightly more than a month. The Russell 2000 rose 2.96 to 357.46 and the Amex rose 3.53 to 600.78.
Advancing issues outnumbered decliners by more than 7 to 4 on the New York Stock Exchange, where volume totaled 458.60 million shares as of 4 p.m., up from Monday’s pace.
The NYSE’s composite index rose 2.19 to 356.52 and the Standard & Poor’s 500-stock index rose 4.09 to 665.60. It was the second straight record close for both indicators, which are heavily weighted with the type of bigger companies that had fallen out of favor in recent months after a stunning rally earlier this year.
Among the market highlights:
* Caremark International rose 3/4 at 29 1/2 and MedPartners-Mullikin lost 1 1/8 at 25 after the companies announced an agreement for MedPartners-Mullikin to acquire Caremark in a $2.5-billion stock swap.
* Corning rose 2 3/4 at 37 7/8 after saying it will spin off its clinical laboratories and pharmaceutical services to shareholders, deciding not to sell the struggling lab division to another company.
* Among retailers, Wal-Mart Stores added 1/2 at 24 3/4 on higher earnings but J.C. Penney dropped 7/8 at 50 3/4 on weaker results.
Overseas, Tokyo’s Nikkei 225 index added 129.23 points, or 0.61%, to 21,301.05 while London’s FTSE 100 ended 20.5 points higher at 3,759.7.
