Economic News Fuels Jump in Bond Yields; Stocks Decline
Treasury bond yields soared Friday while stocks finished modestly lower, as the two markets apparently had different interpretations of a worse-than-expected November employment report.
Analysts said bond investors believe the news wasn’t bad enough, meaning the Federal Reserve may soon end its 11-month-long campaign to ease credit. The yield on the benchmark 10-year U.S. Treasury note shot to 5.16%, its highest level since early August, from 5.01% on Thursday.
Bond traders also said a rise in consumer confidence, based on the University of Michigan’s latest survey, lends credence to the idea that the economy is close to a recovery.
“We saw a sea change in the psychology of the bond market,” Alan Koepplin, portfolio manager at SG Cowen Asset Management, told Bloomberg News. “All of a sudden, the view is the economic recovery is very close, if not at hand.”
Short-term T-bill yields eased, however, in apparent anticipation of at least one more Fed cut at its meeting Tuesday.
Stock investors, meanwhile, showed new doubts that an economic recovery is coming: The Dow Jones industrial average slid 49.68 points, or 0.5%, to 10,049.46; the Nasdaq composite lost 33.01 points, or 1.6%, to 2,021.26; and the Standard & Poor’s 500 index fell 8.79 points, or 0.8%, to 1,158.31.
Still, the Dow and Nasdaq bounced back as they reached 10,000 and 2,000, respectively, by late afternoon, and despite Friday’s losses it was a good week for stocks. The Nasdaq gained 4.7%, the Dow 2% and the S&P; 1.7%. Prices soared Wednesday amid some upbeat economic reports.
Many analysts say stocks appear poised for more gains, though questions loom about what the Fed will say about the direction of interest rates.
“This market’s been really strong. But we’re still in a transitional market, and we’re not going straight up,” Brian Belski, strategist at U.S. Bancorp Piper Jaffray, told Associated Press.
Unemployment climbed to 5.7% in November, the highest level in six years, the Labor Department said Friday. Analysts had predicted 5.6%.
The fear is that a continued rise in joblessness could crimp consumer spending. Because that spending accounts for two-thirds of the economy, any drop-off could jeopardize the turnaround the stock market is anticipating.
Stocks have rebounded sharply since the sell-off after the terrorist attacks, but some analysts question whether the gains are premature amid conflicting economic signs.
Skeptics caution that brokerage analysts have been cutting profit forecasts for companies in the S&P; 500 even as the benchmark index has risen 20% from its three-year low Sept. 21. If the rally has come too far too fast, it could easily falter, they say.
“We are not done with this recession,” Stuart Schweitzer, global investment strategist at J.P. Morgan Fleming Asset Management, told Bloomberg News. “Even if the economy is going to begin a sustained recovery in the spring of 2002, corporate profits are likely to be little changed next year.”
In Friday’s trading, losers topped winners 17 to 14 on the New York Stock Exchange and 19 to 17 on Nasdaq. But volume slowed.
Among the equity highlights:
* Oilfield-services leader Halliburton plunged $8.85 to $12 after its Dresser Industries unit was ordered to pay $30 million in an asbestos lawsuit.
* AOL Time Warner slid $1.77 to $32.98 after a Merrill Lynch analyst predicted a quarterly sales shortfall.
* Intel fell 92 cents to $33.24 after Morgan Stanley Dean Witter’s Mark Edelstone said the chip sector rally could be running out of steam. Xilinx slumped $1.29 to $41, and Applied Materials dropped $1.03 to $44.45.
But Advanced Micro Devices gained $1.60 to $17.85 after raising its fourth-quarter sales forecast, citing robust demand for its Athlon XP chip.
* Fannie Mae and Freddie Mac pared losses from Thursday, when an analyst said their mortgage portfolios may be riskier than investors realize. Fannie Mae gained $1.17 to $77.67, and Freddie Mac rose 94 cents to $64.25.
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Market Roundup: C4, C5
