Dow Just Shy of Record High as Wall St. Cheers Inflation News
Blue-chip stocks rose Thursday as August’s wholesale price report offered evidence that inflation is well under control, but the market was unable to sustain a rally into record territory as it braced for Friday’s release of retail price data.
Broader stock averages advanced with the Dow Jones industrials, with some moving back toward record levels for the first time since spring. The Dow rose 17.02 points to 5,771.94, finishing about 6 points shy of its record high close of 5,778.00, set May 22. The barometer of 30 big U.S. companies had gained nearly 40 points during the afternoon, moving within 2 points of its intraday high at 5,796.10, which came during the May 23 session.
Stocks got a lift from the bond market, where traders welcomed news that wholesale prices excluding the volatile food and energy sectors fell 0.1% last month. Overall, producer prices rose 0.3% in August. Higher inflation can make the fixed payoff on bonds less attractive, forcing down prices to improve the yield. Higher interest rates on bonds can hurt stocks by slowing consumer spending and raising company expenses.
The benign inflation reading reinforced speculation that the Federal Reserve Board won’t decide it needs to try to slow economic growth by raising its key lending rates aggressively. Instead, analysts now expect Fed rate-policy officials to either leave rates alone or raise them modestly at the next Federal Open Market Committee meeting Sept. 24.
“It was clearly a number that gives the Fed an opportunity to not raise rates this month,” said Tracy Herrick, chief investment strategist at Jefferies & Co., who noted that the Fed would like to avoid having any effect on the presidential campaign. The Fed has “clearly been looking for excuses to wait. After the election, and by the first of the year, we could see rates rise rapidly.”
The Fed will also need to consider data to be released Friday on August’s trend in retail prices, but there was little market concern about that because those figures usually fall in line with the wholesale prices report, analysts said.
As bond prices rose, the yield on the 30-year Treasury bond--a key determinant of borrowing costs--fell to 7.07% from the 7.11% of late Wednesday.
Advancing issues outnumbered decliners by more than a 5-3 margin on the New York Stock Exchange, where volume totaled 398.82 million shares as of 4 p.m. It was the busiest pace since early August.
The NYSE composite index rose 1.73 points to 359.73, about 4 points shy of an all-time high; and the Standard & Poor’s 500-stock index rose 3.85 points to 671.13, about 7 points from a record.
The Dow has now bounced back by nearly 590 points, or 11.4%, from the depths of July’s sell-off, which was fueled by negative earnings news and fears about higher inflation and interest rates.
The Nasdaq market and other more volatile sectors also turned in a strong performance Thursday, but they remained well below record levels, with many investors bruised by July’s tumbles exhibiting caution about returning to the market.
The Nasdaq composite index rose 11.86 points to 1,165.81, its best finish since early July but still more than 80 points from a record high.
Among market highlights:
* Xerox fell 3 1/4 to 54 5/8 on Wednesday evening’s news that a deal to sell its insurance unit had collapsed.
* Duracell was the NYSE’s most active issue. It jumped 9 to 58 1/8 on news that it will be acquired by Gillette for about $7.1 billion, or more than $58-per-share worth of stock. Gillette rose 7/8 to 66.
* Microsoft rose 3 1/2 to 128 5/8 after it outlined an aggressive roll-out of several Internet-based products and services.
* Motorola extended its loss, dropping 1 1/4 to 47 3/4 after losing 1 5/8 on Wednesday on the company’s warning that it will report poor results for the third quarter.
* U.S. Robotics rose 4 7/8 to 61 3/4 on expectations the company would have a faster modem on the market by the end of the year.
Overseas, Tokyo’s Nikkei stock average fell 0.6%, Frankfurt’s DAX index rose 0.1%, and London’s FTSE-100 rose 0.7%.
Market Roundup, D6
