Job Growth Rate Slows, Cheering Wall Street : Yields Plunge, Dow Surges 85 Points on Evidence Economy May Be Cooling
July’s stock market correction became a distant memory Friday as blue-chip share prices bolted back to near-record heights on the firmest evidence yet that economic growth is slowing from spring’s brisk pace.
Powered by a plunge in long-term bond yields to late-April levels, the Dow Jones industrials surged 85.08 points, or 1.5%, to 5,679.83--recouping nearly all of the steep decline suffered in early and mid-July.
The broad market posted even bigger gains. The Nasdaq composite index of mostly smaller stocks rocketed 26.07 points, or 2.4%, to 1,124.92.
Winners swamped losers by more than 4 to 1 on the New York Stock Exchange and by nearly 2 to 1 on Nasdaq.
“The breadth of the market is very impressive. This is the broadest move in months, and that’s one for the bulls,” said Michael Metz, a recently bearish analyst at Oppenheimer & Co. in New York.
Stocks benefited from the fourth straight session of sliding market interest rates, after the government reported that the economy generated fewer jobs than expected in July.
Coupled with other reports this week showing slower growth and subdued inflation, Friday’s jobs report sparked a renewed frenzy of bond buying, as traders bet that the Federal Reserve Board now won’t feel compelled to tighten credit when it meets on Aug. 20.
Fed Chairman Alan Greenspan “was looking for an excuse not to raise interest rates, and he got that,” said Steve Vielhaber, who heads $35 billion of taxable bonds at Bank of America in Los Angeles.
Bond investors had pushed yields up sharply since winter, betting that the economy’s surprising strength would force the Fed to begin raising short-term rates to slow activity.
But as those worries faded this week, the bellwether 30-year Treasury bond yield plummeted to 6.74% by Friday’s close, down from 6.83% on Thursday and 7.01% a week ago. Friday’s close was the lowest since April 22.
Shorter-term yields also continued to dive. The one-year T-bill yield sank to 5.58% by Friday, down from 5.92% on Monday.
In all, U.S. bonds completed their biggest one-week rally in 15 months.
For the stock market, battered in July by not only interest-rate worries but also concerns about slowing corporate earnings growth, this week’s turnaround in rates was enough to bring buyers flocking back. “There was a huge sigh of relief on Wall Street,” said Philip Orlando, chief investment officer at Value Line Asset Management.
“Goldilocks is back,” with the economy not too hot or too cold, “and near term I think we’ll have a summer rally,” said David Shulman, chief equity strategist at Salomon Bros.
Friday’s gain left the Dow off just 1.7% from its record high of 5,778.00 set May 22. At the deepest point in the July sell-off the Dow was down more than 10%.
The Nasdaq composite index, off more than 20% at its July low, has recouped more than half that, and now is off 9.9% from its record high.
Not everyone was willing to declare a watershed, however.
“The environment was so extraordinarily pessimistic that since the world didn’t end, we’ve had a rally,” said Michael Link, who runs a $180-million portfolio at Gradison-McDonald Asset Management in Cincinnati. “To my way of thinking, we’re still in the dark. We need more definitive data” on the economy.
Among Friday’s highlights:
* Financial stocks led the rally. Merrill Lynch soared 3 1/8 to 64 3/8, Wells Fargo rocketed 7 1/2 to 244 5/8, J.P. Morgan leaped 2 5/8 to 89 1/8 and BankAmerica gained 2 3/4 to 84 1/4.
* Among recently battered tech issues, Hewlett-Packard rose 1 1/2 to 45 1/4, Intel shot up 1 3/4 to 78 3/4, Micron gained 3 5/8 to 22 7/8 and Microsoft jumped 2 3/4 to 123 3/8.
* Industrial stocks that would benefit from a sustained economic expansion, even if a slower one, rose broadly. Emerson Electric gained 3 1/8 to 88 3/8, GE soared 2 3/4 to 86 1/8 and B.F. Goodrich rose 1 3/8 to 38.
* Airline stocks climbed after AMR, parent of American Airlines, reported a surge in domestic passenger traffic in July. AMR jumped 3 to 81 3/4 and Delta rose 1 1/2 to 71 1/8.
* Circon climbed 7 1/8 to 19 1/4. U.S. Surgical started an unsolicited $18-a-share offer for all outstanding Circon shares. Some investors bet the hostile bid will be sweetened.
In foreign trading, European stock markets climbed, partly as a result of gains in U.S. stocks. Swiss stocks surged 3.2%, Swedish shares 2.2% and Spanish stocks 2%. Latin American shares also soared. But in Asia earlier, Japanese stocks continued to edge lower.
Meanwhile, pork belly prices soared to their highest level in 14 years Friday after the government reported that hog slaughtering was well behind last year’s pace while demand for bacon remained strong.
August pork belly futures rose the two-cent daily limit to 98.475 cents a pound at the Chicago Mercantile Exchange. It was the highest price since August 1982, though well below the record of 105.10 cents a pound set in August 1975.
“It is the slaughter pace combined with really good demand. The fast food chains now consume huge amounts of bacon every day,” broker Dennis Smith of LIT Investor Services said. Pork bellies are used to make bacon.
Market Roundup, D3
