Stocks Cruise to New Highs; Bonds Rally
Stocks soared to record highs and U.S. bonds rallied Thursday as the latest economic data validated the view that inflation poses no threat for the foreseeable future.
The Dow Jones industrial average rolled toward 7,900, advancing 100.43 points to 7,895.81 and eclipsing its June 20 record close of 7,796.51. For the week, the index of blue-chip stocks was up 208.09 points. U.S. financial markets closed early Thursday, at 10 a.m. PDT, and are closed today for the Independence Day holiday.
Broader stock measures also hit new highs after the Labor Department released a report showing that pressures on employment costs--the leading force behind inflation--remained mild last month. The unemployment rate rose to 5% last month, from a 23-year-low of 4.8% in May. The economy created 217,000 jobs, fewer than expected.
The report numbers jibe with Wednesday’s action by Federal Reserve Board policymakers, who left interest rates alone, apparently because they think inflationary pressures aren’t such that the central bank needs to slow the economy by raising interest rates.
Bond prices surged and yields fell to four-month lows Thursday as investors apparently became more confident that the Fed will not raise interest rates in coming months, either.
The yield on the benchmark 30-year Treasury bond fell to 6.62% from 6.71% on Wednesday.
“The market has a green light,” said John Burgess, who helps manage $70 billion in bonds at Bankers Trust Global Investment Management. “With this momentum, I don’t see us ruling out the [yield on the 30-year Treasury] bond going to 6.50%.”
Advancing issues outnumbered decliners by a 5-2 margin on the New York Stock Exchange in moderate trading.
The Standard & Poor’s index of 500 stocks jumped 12.89 points to 916.92, the NYSE composite index rose 5.98 points to 477.69, and the Nasdaq composite index rose 12 points to 1,467.61. All three hit new highs for a second straight day.
Analysts detected a seasonal note in the markets’ performance, pointing out that the Independence Day holiday has in the past produced more than its share of market fireworks.
“Historically, the stock market usually makes a strong move, in either direction, in the days preceding the Fourth of July,” said Gail Dudack, chief investment strategist at UBS Securities.
Such was the case a year ago, when a stunningly strong jobs report on the day after the holiday initiated a monthlong stock market correction. But any fears of a repeat performance dissipated with Thursday’s jobs report.
Among the day’s highlights:
* For a second straight day, financial services companies were among the market’s biggest gainers. American Express jumped 6 7/8 to 83 to lead the Dow’s advance, and Chase Manhattan rose 3/4 to 103 1/4.
Other big Dow gainers included Procter & Gamble, up 2 3/8 to 144; Caterpillar, up 1 13/16 to 109 1/16; and Exxon, up 1 1/2 to 64 5/8.
* Aerospace and defense contractors gained on the news that Northrop Grumman and Lockheed Martin plan to merge. Northrop surged 21 1/8 to 110, but Lockheed fell 4 7/8 to 99 1/8.
Litton Industries rose 3/8 to 49 1/2; United Technologies gained 1 3/4 to 86; Raytheon rose 3/4 to 53 3/4; and Thiokol gained 1 1/2 to 71 9/16.
* Gold stocks fell after Australia’s central bank said it sold 167 metric tons of the precious metal, or 68% of its holdings, for $1.784 billion.
The American Stock Exchange Gold Bugs Index lost an early gain, slipping 1.35 points to 144.50 on the news. Newmont Mining fell 13/16 to 37 7/8, Freeport-McMoRan Copper & Gold fell 1/8 to 29 3/8 and Bema Gold dropped 5/16 to 6.
Overseas, Tokyo’s Nikkei-225 stock average closed down 0.4%, Frankfurt’s DAX index rose 0.8% and London’s FTSE-100 climbed 1.7%.
