Yields Surge, but Stocks Stage a Rally
A strong March employment report spooked bond traders Friday, but the highest yields in nearly seven months couldn’t stop the battered stock market from rebounding--at long last.
The Dow Jones industrial average ended the day with a gain of 48.72 points at 6,526.07, as blue chips staged their first significant rally in two weeks.
More important, the broad market also closed higher in heavy trading. Winners topped losers by 14 to 11 on the New York Stock Exchange and by 23 to 17 on Nasdaq.
That marked the first session with positive “breadth” since March 26.
“This was enough [of a turn] to suggest we’ll see some kind of further rally” in the near term, said Dennis Jarrett at market analysis firm Jarrett Investment Research in Westport, Conn. But he questioned whether any new rally would have much staying power.
The Dow plunged 428 points, or 6.2%, between March 25 and Thursday, as some investors bailed out of the market in the wake of the Federal Reserve Board’s decision March 25 to raise short-term interest rates for the first time since 1995.
The steepness of the decline took some analysts by surprise, if only because the Fed’s move had been widely anticipated.
On Friday, stocks faced more potentially bad news as bond yields jumped after the government’s report on March employment showed strong wage gains and job creation in the month--another sign that the economy is accelerating.
That raises the likelihood that the Fed, which wants to slow the economy to keep inflation from picking up, will raise interest rates again on or before its May 20 meeting.
Reacting to that probability, the yield on the bellwether 30-year Treasury bond rose to 7.12% on Friday, up from 7.06% on Thursday and the highest since September. Shorter-term yields also rose.
But in the stock market, some investors apparently decided that prices had gotten cheap enough, at least for now. Although the Dow sank as low as 6,404.84 early in the day as yields rose, it rebounded as deeply depressed technology shares led the broad market higher.
The Nasdaq composite index, heavy with tech shares, surged 22.97 points, or 1.9%, to 1,236.73, its second straight gain.
The negative market sentiment in recent weeks “has been taken out largely on tech stocks,” noted Ed Nicoski, analyst at brokerage Piper Jaffray in Minneapolis. So they were primed to rally, he said.
What’s more, “short sellers,” who bet on declines in individual stocks, had targeted the tech area in recent months, analysts said. With the stocks beginning to rebound, some of those shorts may have rushed in to cover their bets, repurchasing the shares and thus helping to drive them higher.
But Nicoski and other analysts said it remains to be seen whether stocks can put together more than a modest rebound here--especially if bond yields continue to rise.
First-quarter corporate earnings reports will be key to stocks’ trend, analysts said: If smaller stocks in particular fail to respond positively to earnings reports, that could mean another wave of selling lies ahead.
Among Friday’s highlights:
* Tech shares leading the charge included Intel, up 4 3/8 to 145; Remedy, up 6 5/8 to 47 5/8; Hewlett-Packard, up 2 1/8 to 52 3/4; Dell Computer, up 5 1/2 to 74 1/4; and Computer Associates, up 3 1/4 to 44.
But IBM gave up 1 7/8 to 129 1/4 as Merrill Lynch cut its near-term rating on the stock.
* Retail stocks gained on optimism about consumer spending. Dayton Hudson rose 1 to 43 1/4, Home Depot jumped 1 3/4 to 54 5/8 and Gadzooks leaped 1 3/4 to 36 1/4.
* Airline stocks also were helped by the strong economic data. AMR, parent of American, leaped 3 7/8 to 86 3/8 and Delta jumped 4 1/8 to 89 5/8.
Airlines were also bolstered by falling oil prices. Near-term crude futures fell 35 cents to $19.12 a barrell, the lowest in a year, on news of rising supply.
* Centocor surged 4 5/8 to 36 1/8 after the biotechnology company reported a breakthrough in late-stage trials of its drug for Crohn’s disease.
In currency trading, the dollar ended sharply higher against the Japanese yen and the German mark, cheered by reassuring comments from Treasury Secretary Robert Rubin and the U.S. employment report.
Rubin, in Japan on his way to a meeting of Asia-Pacific finance ministers in the Philippines, rejected suggestions that a stronger Japanese currency--and thus a weaker U.S. dollar--was the best way to avoid a renewed rise in Japan’s trade surplus with the United States.
The dollar ended the day at 124.31 yen, substantially up from 122.65 on Thursday. Against the mark, it climbed to 1.6858, compared with Thursday’s 1.6695.
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Finally, a Bounce
Technology stocks have rallied from Wednesday’s lows, helping to stabilize the market overall. Some of the tech stocks that have led the two-day rebound:
*--*
52-week Wednesday Friday Stock high low close Cisco Systems $75.75 $47.00 $50.88 Dell Computer 76.00 67.63 74.25 Intel 165.00 136.50 145.00 Lucent Technologies 60.63 49.88 54.38 Remedy 55.75 36.63 47.63 Seagate Technology 56.25 45.88 50.63 Texas Instruments 87.25 74.63 83.00 Western Digital 77.25 58.38 64.63
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Source: Times research
Market Roundup, D7
* JOBLESS RATE DROPS
Unemployment fell to 5.2%, upsetting inflation-skittish financial markets. A1
* CALM AFTER STORM
Recent stock declines failed to unsettle most mutual fund investors. D2
