Markets Mixed on Jobs Report
Financial markets appeared cautiously hopeful Friday that the latest strong employment data won’t trigger a credit-tightening move by the Federal Reserve Board.
News that wage inflation moderated in February even as the number of new jobs surged helped send bond yields lower and lifted the Dow Jones industrial average 56.19 points to 7,000.89.
But the broader stock market was mixed. Smaller stocks continued to weaken, with the Nasdaq composite index losing 3.63 points to 1,311.80.
Still, “Investors feel this report lowers the probability of a rate increase in March,” said Charles Ritter, a stock market strategist at Federated Investors, which manages more than $100 billion. “And because it’s delayed, they’re hoping it will not happen at all.”
Other analysts weren’t as hopeful. Goldman, Sachs & Co. chief economist William Dudley predicted the Fed will in fact raise its key short-term rate, the federal funds rate, from 5.25% to 5.5% when the central bank meets on March 25.
“Strong data, combined with a Fed chairman who believes that monetary tightening must be preemptive, suggests that Fed officials will decide to tighten,” Dudley said.
For much of Friday Wall Street appeared to want to give the Fed the benefit of the doubt.
Bond yields initially jumped after the government reported the employment data. But within minutes yields began to decline, as traders dissected the report.
Despite the creation of 339,000 jobs last month--many more than expected--wage pressures moderated.
Average hourly earnings for private production workers rose just 3 cents to $12.09, after a 2-cent increase in January.
In contrast, the average wage had risen 9 cents in November and 5 cents in December.
Fed officials have warned that if wage gains had continued at last year’s heady pace, they might be forced to raise interest rates to stop a powerful new cycle of wage and price inflation.
With Friday’s report, “Although we’re seeing ongoing tightness in the labor markets, which was dramatized by the decline in the unemployment rate, we are not yet seeing upward pressure on wages,” said Hugh Johnson, chief investment officer at First Albany Co.
The news helped send the yield on the bellwether 30-year Treasury bond down to 6.81% from Thursday’s 6.88%.
On the New York Stock Exchange, advancing issues outnumbered decliners by nearly a 2-1 margin in heavy trading.
The Standard & Poor’s 500-stock list rose 6.41 points to 804.97, its third gain in five days, and the NYSE’s composite index rose 3.59 points to 423.83.
But smaller stocks were weak again, which some analysts say is a bad sign. The Nasdaq composite index fell 3.63 points to 1,311.80, and losers had a slight edge over winners on Nasdaq.
Among Friday’s highlights:
* The Dow’s biggest gainers were Philip Morris, up 2 3/4 to 136, and Eastman Kodak, up 2 3/4 to 91 1/2.
* Nasdaq was weighed down by a slump in technology bellwethers. Cisco Systems fell 3 1/4 to 51 3/8; Intel was off 1 7/8 to 143 1/2; and Microsoft slipped 1 to 96 3/4.
Included among tech losers was Atmel, which slumped 4 3/4 to 26 3/4 after the semiconductor company said it expects first-quarter revenue to fall as much as 10% below the fourth quarter.
Computer networking companies dropped after Fore Systems said it is experiencing a pickup in sales this month that may indicate slackening demand for its products later this year. Fore tumbled 5 3/8 to 25 3/4.
Other semiconductor issues gained. Texas Instruments rallied a day after predicting that semiconductor sales would rise by 10%. TI rose 3 3/8 to 83 7/8. Other semiconductor shares also gained, including Novellus Systems, up 5/8 at 82 7/8; Advanced Micro Devices, up 1 3/4 to 39 1/2; and Motorola, up 5/8 to 59 3/8.
* The improving interest-rate backdrop boosted issues for banks and other financial services. Chase Manhattan rose 3 3/4 to 106 1/2, Citicorp gained 3 1/4 to 125 3/4, BankAmerica leaped 3 1/4 at 122, Merrill Lynch rose 1 1/2 to 98 5/8 and A.G. Edwards climbed 1 to 37 1/4.
* Colgate-Palmolive surged 4 5/8 to 113 3/4 after declaring a 2-for-1 stock split and dividend boost.
In currency trading, the dollar rose against the yen after the jobs report.
In New York, the dollar rose to 121.82 Japanese yen from 121.13 late Thursday. It revisited Thursday’s three-year high of 1.7210 German marks, before ending at 1.7140 marks, up from 1.7160 marks Thursday.
Overseas, Tokyo’s Nikkei stock average rose 0.9%, Frankfurt’s DAX index fell 1.2%, and London’s FTSE-100 rose 0.5% to a new high.
Market Roundup, D4
* EMPLOYMENT REPORT
Jobs rose strongly in February, cutting unemployment. A1
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Slowing Wage Gains
Average hourly wages of private-sector non-supervisory workers rose 3 cents to $12.09 in February, a smaller-than-expected gain that relieved some concerns about accelerating wage inflation. The annualized rate of change in wages so far this year is 2.6%, below the 3.7% rise for all of 1996. Average hourly wage:
February 1997: $12.09
Source: Bloomberg News
