August Data Spurs Rally; Dow Gains 81
Some favorable reports on the economy’s trend in August helped stoke a strong bond market rally on Friday, which in turn brought buyers back to stocks.
The Dow Jones industrials shook off their recent blahs and jumped 81.99 points, or 1.1%, to 7,742.97--breaking a string of lower closes on the last eight Fridays.
Smaller stocks also rallied, with winners outnumbering losers by a 25-to-18 margin on Nasdaq.
The Nasdaq composite index closed up 9.47 points, or 0.6%, to 1,649.33, and the Russell 2,000 index of smaller stocks gained 4.16 points, or 1%, to a record 440.09--the 10th record in 13 sessions.
Stocks drew an early boost from the bond market, where interest rates fell sharply after the release of two reports restoring some faith in the outlook for steady economic growth with low inflation.
The August report on wholesale inflation showed a small 0.3% rise in the month, with the “core” rate--excluding food and energy--up a mere 0.1.%.
Also, the government said retail sales rose in August, but at a slower-than-expected pace.
The yield on the 30-year Treasury bond, which at 6.69% on Thursday was the highest since July 2, tumbled to 6.58% Friday. Shorter-term yields also sank.
“As long as inflation isn’t a problem, the market is very attractive,” said James Conroy, who helps manage $5.5 billion in bonds for Smith Barney Inc.’s Greenwich Street Advisors.
As for stocks, bonds’ strength helped to dampen the effect of Motorola’s warning late Thursday that its current-quarter earnings will be below expectations, in part because of weaker sales of pagers.
Even Motorola bounced back somewhat, rising $3.31 to $69.19 after diving $8.38 on Thursday.
“These are companies that still have world markets to conquer,” said Henry Lartigue, chief investment officer at Texas Commerce Bank, referring to Motorola and other multinational blue chips that have been battered in recent weeks by earnings worries. “Investors would be making a mistake by writing them off.”
Still, the Dow was down 79.44 points for the week and remains off 6.3% from its record high of 8,259.31, set on Aug. 6.
“We’ve had some mild acrophobia among the buyers,” said Richard A. Dickson, a technical analyst at Scott & Stringfellow in Richmond, Va. “It may have something to do with the psychology that’s been rampant in the market--that we’re in the middle of a correction, and it’s time to sell on the bounces. But that sentiment ran out of steam [on Friday],” Dickson said.
Among Friday’s highlights:
* Resurging blue chips included Procter & Gamble, up $2 to $133.50; Warner Lambert, up $5.25 to $133; 3M, up $1.69 to $91.75; and Chevron, up $1.56 to $82.38.
* Retail stocks were broadly higher. Sears gained $1.50 to $57.25, Nordstrom surged $2.69 to $64.38 and May Department Stores jumped $1.56 to $55.75.
In currency trading, the yen came under heavy selling pressure overnight as the Nikkei 225 index of Japanese stocks fell 1.7% to a five-month low of 17,966, on growing concerns about the economy’s weakness. A drop in the benchmark Japanese 10-year bond yield below 2% also pressured the yen.
The dollar rose to 120.96 yen from 119.55 Thursday.
But the dollar sank against the German mark, to 1.772 from 1.78, on continuing fears that German interest rates will rise soon. In Frankfurt, the DAX-30 stock index dove 3% to 3,854.81.
