Dow Displays Fancy Footwork After Jobs Report
Blue-chip stocks staged a stunning turnaround Friday, transforming an inflation scare into a buying opportunity after the release of a strong jobs report. But long-term bond yields surged above the key 7% level, as investors braced for a possible boost in interest rates by the Federal Reserve Board next month.
The widely watched Dow Jones industrial average ended up 29.92 points at 5,697.11, a remarkable comeback after dropping 85 points in the first half-hour. Broader indexes also recovered dramatically but still ended the day little changed or lower.
The roller coaster started when Wall Street was rocked by the Labor Department’s report that May nonfarm payrolls rose 348,000--double private economists’ average projection--and that April nonfarm payrolls were revised sharply higher.
“It raises the specter that the Fed will raise interest rates at its July meeting,” said Hugh Johnson, chief investment officer at First Albany. The bond markets appeared to agree--for example, six-month yields rose to 5.51% as the discount rose 0.11 percentage point to 5.30%. The yield on the 30-year Treasury bond--a guide for rates on everything from auto loans to mortgages--rose to 7.03% from 6.90% late Thursday, its biggest one-day jump since May 2.
More jobs mean more spending, which can create too much demand and rapid inflation, which hurts the value of fixed-income investments such as bonds. The prospect of the Fed raising interest rates to slow the economy can also be a negative for corporate profits.
The morning losses triggered the New York Stock Exchange’s “uptick rule,” which limits certain types of computer-guided selling in order to stabilize the market. The NYSE lifted the rule after the rebound.
It appeared to be computer-guided buying that contributed to the market’s recovery. Four rounds of buying lifted the Dow industrials by 87 points, according to Birinyi Associates Inc., a market analysis firm.
“Once again, we bent but didn’t break,” said Alfred E. Goldman, vice president of A.G. Edwards & Sons Inc. of St. Louis.
Investors realized that “the fact that people are employed isn’t necessarily bad for earnings,” said Dirk van Dijk, equity strategist for Dean Investment Management.
Other analysts said the possibility of a strong economy without runaway inflation keeps many investors optimistic and willing to buy whenever stocks slide. “The stock market likes this environment,” said Alfred Kugel, a senior investment strategist at Stein Roe & Farnham in Chicago.
“These one-day statistical aberrations cause all the traders to switch from one side of the ship to the other, but I don’t think one should get too excited,” said Kugel, a 42-year veteran of money management.
The Standard & Poor’s 500 index also managed to erase its losses Friday, closing 0.27 point higher at 673.30 after tumbling 10.55 points in early trading. Even so, nearly three stocks fell for every one that rose on the NYSE, and other market indexes declined.
The dollar also rose, because economic health, higher interest rates and benign inflation increase the value of dollar-denominated holdings.
By 4 p.m. in New York, the dollar was trading at 109.23 yen, up from 108.60 earlier in the day and higher than its 109.21-yen close Thursday. The dollar hasn’t been at these levels against the yen since February 1994. It also traded at 1.5366 German marks, up from 1.5296 on Thursday.
Among Friday’s highlights:
* The jobs report helped economically sensitive shares. Alcoa gained 1 3/4 to 59 5/8 as Merrill Lynch & Co. reiterated its “buy” rating, while United Technologies rose 2 1/4 to 114 3/8 and Boeing rose 1 3/8 to 85 7/8.
* IBM rose 1/2 to 101 3/4 after falling more than 5% initially as analysts cut their ratings and earnings estimates. “It’s a very cheap stock,” said Larry Puglia, a money manager at T. Rowe Price Associates.
Among other technology companies, Hewlett-Packard rose 1 3/4 to 106 after hitting a session low of 102 3/8, Intel was unchanged at 75 1/4 after trading as low as 73 1/2, and Microsoft rose 1 7/16 to 121 1/4 after hitting a low of 117 5/8.
* America Online rose 2 1/2 to 48 7/8 after Alex. Brown upgraded the stock.
* Pure Software rose 1 1/4 to 40 3/4 and Atria Software lost 3 1/2 to 60 1/2 after agreeing to merge in a stock deal.
* Among utilities, Southern shed 3/8 to 22 3/4 and Duke Power fell 3/8 to 48 5/8. Utility stocks are an alternative to bonds for many investors because their dividends are relatively high.
Overseas, Tokyo’s Nikkei stock average fell 0.2%, Frankfurt’s DAX index rose 0.2% and London’s FTSE-100 fell 1.4%.
* JOB SURGE
U.S. economy adds 348,000 jobs in May, double what was expected. A1
