Bonds, Blue Chips Rally on Inflation Reports
Bonds staged their biggest rally in 10 weeks and stocks were mostly higher Thursday on reports showing moderate inflation, with the Dow Jones industrial average and the Standard & Poor’s 500 setting records.
The Dow climbed 106.82 points, or 1%, to 11,107.19, boosted in large part by IBM--which rocketed $20.50 to a record $246 after upbeat comments about its Internet businesses.
The Dow breezed past its previous closing record of 11,031.59 posted last Friday. The index is up nearly 21% this year.
The S&P; 500 rose 3.56 points to 1,367.56, topping its previous closing high of 1,364.00 set Wednesday.
But the Nasdaq composite index slid 0.9% to 2,582.00 as some investors dumped many upstart Internet stocks--perhaps to buy IBM.
Even so, winners topped losers by 18 to 12 on the New York Stock Exchange and by 21 to 18 on Nasdaq.
The S&P; small-stock index surged 1%.
The bond market set a good tone for stocks. The yield on the benchmark 30-year Treasury bond fell to 5.75% from 5.82% on Wednesday as the government said prices paid to U.S. factories, farmers and other producers--an inflation gauge--increased just 0.1% in April, excluding food and energy costs.
“There’s still no inflation,” said Pat Gray, head of institutional Treasuries trading at U.S. Bancorp in Minneapolis. “This is a great chance to be buying bonds.”
“Treasuries offer value now,” said John Boritzke of M&I; Investment Management Corp. in Milwaukee. “You can’t be too worried about inflation.”
Boritzke said he foresees 30-year yields dropping to 5% by the end of the year.
Yields on two-year notes, the most actively traded Treasuries, fell to 5.12% from 5.17%.
Bonds may benefit soon because there will be fewer of the securities to go around: The Treasury on May 3 estimated that it will retire a net $116 billion in debt--a record amount--during the current quarter as the growing economy generates enough tax revenue to produce a second annual budget surplus.
U.S. government debt totals about $5.6 trillion, of which $3.4 trillion is traded publicly.
Global competition has helped bring product and service prices down, a pattern that may continue, said Federal Reserve Vice Chairwoman Alice Rivlin.
Companies and workers must remain “nimble” to adapt to global competition, Rivlin said in a speech to the Minnesota Meeting, a group of academic and business leaders, on how the U.S. can sustain a “booming” economy. U.S. producers have “less control over prices,” she said, saying the trend seems likely to endure thanks to expansion of global trade.
Among Thursday’s highlights:
* Hewlett-Packard, also a Dow stock, rallied with IBM, surging $3.75 to $87 on optimism about its quarterly earnings report, due Monday.
But the gains in IBM and HP were offset in the tech sector by declines in many other stocks. Microsoft, for example, fell $1.38 to $79.13, and Intel fell $2.44 to $60.06.
Many Internet stocks were also sharply lower, led by EBay, down $6.25 to $192.50, and Go2Net, down $8.63 to $125.06.
* Many telecom stocks were strong. Scientific Atlanta jumped $2.50 to $39.31, and Tellabs rose $3.56 to $121.69.
* Banks surged, led by J.P. Morgan, up $7.63 to $146.75 on renewed takeover rumors. Also gaining: Bank One, up $2.63 to $63.13, and Key, up $2 to $36.94.
Some mutual fund firms also surged, led by Franklin Resources, up $4.50 to $44.50.
* ConAgra soared $2.69 to $27.50 one day after announcing a major restructuring.
In foreign trading, the South Korean market continued to slide on interest rate jitters. The main index dived 4%. It has fallen 8.8% since Monday.
Market Roundup, C8
