Stocks Surge, Nearly Wiping Out October Plunge
Showing it has nearly fully recovered from its deep sell-off in October, the stock market rallied with a key index setting a new high Friday after an unexpectedly strong jobs report renewed optimism about the U.S. economy.
The Standard & Poor’s 500-stock index, which comprises the biggest U.S. companies, gained 10.69 points, or 1.1%, to close at a record high of 983.79. The index is up 12.2% since Oct. 27, the day U.S. stocks fell sharply in response to the Asian financial turmoil. For the year, the S&P; 500 is up 32.8%.
The Dow Jones industrial average added 98.97 points, or 1.2%, to end at 8149.13. After rising 4.2% for the week, the Dow has come within 110 points of its high, set Aug. 6.
The U.S. market is the first to recover and push to new highs following October’s global sell-off. That rout was triggered when investors attacked the Hong Kong dollar following a series of Asian currency devaluations dating back to early July.
The repercussions from Asia hampered U.S. stocks through mid-November. But they have risen steadily since then, as investors have come to believe that Asia’s woes won’t derail the U.S. economy.
That thinking was cemented Friday when the Labor Department reported that the U.S. added 404,000 jobs in November, almost twice as many as Wall Street had expected. That pushed the unemployment rate to a quarter-century low of 4.6%.
Such a vibrant report often hurts the stock and bond markets by raising the specters of higher inflation and Federal Reserve Board rate hikes. But after rising sharply initially, bond yields recovered to close only moderately higher. The 30-year Treasury bond yielded 6.09%, up from Thursday’s 6.04%.
Wall Street shrugged off the jobs report in the belief that the Asian crisis has weakened the global economy enough to keep inflation at bay without crippling U.S. corporate profits, Wall Streeters said.
“The market thought about it and said the fact that the domestic economy is still OK is good news on the corporate-profit front,” said Charles Blood, market analyst at Brown Brothers Harriman & Co. in New York. “A little bit of domestic strength helps.”
Some European indexes have rebounded from their recent lows, though none has pushed to a new peak. London’s FTSE-100 index has gained 9% from its bottom, and Germany’s DAX index is up 15%.
Led by Hewlett-Packard and PeopleSoft, technology stocks rebounded from their recent weakness. Financial and energy stocks were also strong.
Inflation isn’t a problem because Asia has caused a wide range of commodity prices to fall, said Thomas McManus, chief investment strategist at NatWest Securities Corp.
“It’s not just PCs,” McManus said. “It’s metals, pulp and paper, chemicals, steel. There’s overcapacity in a lot of different industries.”
In currency trading, the strong jobs figure helped the U.S. dollar rise to another 5 1/2-year high against the Japanese yen, finishing at 130.20 yen to the dollar. The greenback climbed to 1.78 marks, its best close since Oct. 24.
Despite the vibrancy in larger issues, smaller stocks have lagged since October. The Russell 2,000 index gained 0.7% on Friday, but investors continue to favor the perceived safety of larger stocks at the end of the year.
“Very typically, what happens after a selling climax is money goes back to the big names first and then it broadens out,” Blood said.
Several Asian markets rallied as global investors have tried bottom-fishing in recent days. South Korean stocks jumped for the third day. They gained roughly 7%, led by banks and insurance companies, following the bailout plan agreed to earlier this week. Malaysian stocks picked up 5%, Thai stocks 4% and Indonesian stocks 3%.
Closed-end country funds also rose smartly, as U.S. investors tried to play the rebound. The Korea Fund surged 13%, the Indonesian Fund, 11%, and the Malaysian Fund, 9%.
However, South Korea’s market, which trades on Saturdays, was off nearly 4% early today amid new corporate default rumors.
Among Friday’s U.S. highlights:
* Many banks were strong, led by Citicorp, which gained $4.38 to $139.88, and BankAmerica, up $2.94 to 81. Disinflationary pressures can be good for banks, because it improves the credit-worthiness of their loan portfolios.
Wells Fargo fell $2.81 to $329.25, as investors took profits after its 16-point run-up Thursday on buyout speculation.
Sumitomo Bank of California soared $10.38 to $51 on news that the California retail banking unit may be up for sale.
* Several technology stocks showed smart gains. Ascend Communications rose for the second day on takeover speculation and the company’s forecast that it will meet fourth-quarter earnings estimates. It finished up $2.06 at $28.94
Hewlett-Packard rose after it said it is shipping the first palmtop personal computer featuring a 256-color screen.
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Resurgent Blue Chips
The Standard & Poor’s 500 index of blue chip shares rose 10.69 points, or 1.1%, to a record 983.79 on Friday, surpassing the previous high of 983.12 set on Oct. 7. The U.S. market is the first major world market to hit new highs after the global late-October plunge. S&P; 500, weekly closes:
Friday: 983.79
Source: Bloomberg News
