Stocks Get Late Boost, but Bond Yields Soar on Worries
Stocks eked out gains after a late-afternoon bounce Friday, capping a week of losses as investor unease grew over the U.S. economy and unrelenting bad news on corporate profits.
But bond investors took a beating as Treasury yields soared in response to reports hinting that inflation may be making a comeback.
After spending much of the session nearly unchanged from Thursday’s close, the blue-chip Dow Jones industrial average climbed 44.7 points, or 0.5%, to 9,811.15. The broader Standard & Poor’s 500 index rose 3.69 points, or 0.3%, to 1,123.07. The technology-laden Nasdaq composite index advanced 6.66 points, or 0.3%, to 1,953.17.
Five stocks rose for every four that fell on the New York Stock Exchange, and winners and losers were about even on Nasdaq. Trading was moderate.
For the week, the Dow fell 2.4%, while the S&P; 500 dropped 3% and Nasdaq slid 3.4%. It was the biggest weekly loss for the S&P; 500 since late September.
“We’ve had a bit of profit-taking after a pretty good couple of weeks, and the consensus had become that there would be a correction,” said John Manley, chief equity strategist at Salomon Smith Barney. “But now there’s more upside to the market after all the selling.”
Recent data have failed to offer a concrete picture of how and when the U.S. economy will emerge from recession. The market also has been buffeted by a steady procession of companies warning that their earnings have been deeply eroded by the economic slump, including blue-chip firms such as Merck and American Express.
Analysts predict that fourth-quarter profits for Standard & Poor’s 500 companies will sink by almost 19%, according to research firm Thomson Financial/First Call. That forecast could drop further as analysts cut their outlooks throughout the quarter.
“People are counting on a recovery very soon,” said James Park, senior vice president of brokerage Brean Murray & Co. “Guidance and earnings are just telling you that it will take a little more time, but it’s going to be a tough market.”
Though good news for the stock market, an economic recovery would be bad news for bond investors because it could mean the end of the Federal Reserve’s year-long string of interest rate cuts and signal the return of inflation, which erodes the value of fixed-income investments such as bonds.
On Friday, a sharper-than-expected rise in November consumer prices, excluding food and energy items, spooked bond investors. They also focused on hints that the economy is showing signs of life--a record drop in business inventories in October and a smaller-than-expected decline in November industrial production.
The yield on the benchmark 10-year Treasury note jumped to 5.19% from Thursday’s close of 5.07%. Just five weeks ago, the 10-year note was yielding 4.2%--an indication of how dramatically sentiment has changed among bond investors.
The yield on the two-year T-note climbed to 3.15% from 3.05%.
“The Treasury market is starting to forecast a better economy down the road,” said Alan Day, fixed-income manager at Banknorth Investment Management Group in Vermont. “The market is generally pretty smart about forecasting recessions and recoveries--this time should be no exception.”
Among Friday’s market highlights:
* Oil prices jumped $1.11 a barrel to $19.23 in New York trading after Russia--the No. 2 oil exporter--said it wants crude prices to rise to $20 to $25 a barrel.
* Oil-related shares rallied along with oil. Exxon Mobil rose 42 cents to $36.86, oil field services giant Schlumberger gained $1.16 to $52 and driller Baker Hughes added $1.03 to $34.72.
* Gold mining shares gained as near-term gold futures jumped $4.10 to $278 an ounce. Newmont Mining rose 69 cents to $19.72, Barrick Gold added 70 cents to $16.37 and Placer Dome was up 55 cents at $11.27.
* McDonald’s, the world’s largest fast-food chain, rose $1.16 to $26.80, helping support the blue-chip Dow and sparking a rally in restaurant shares. McDonald’s predicted growth in 2002, even as it said fourth-quarter U.S. sales would fall slightly.
* Software giant Oracle posted an earnings drop late Thursday, which helped dampen gains in the technology sector. Oracle shed 10 cents to $14.57 but said it expects profit growth to resume by the second quarter of next year.
* The Philadelphia semiconductor index rose 2.3%, recovering some of Thursday’s 7% loss. Shares of chip-making equipment companies--such as Applied Materials, up $1.24 to $42.32--staged a broad rally. Analysts said the gains mirrored cautious investor optimism about the sector’s prospects.
* Clorox shares fell $2.07 to $38.30. The Oakland-based consumer products company said its fiscal second-quarter profit would beat forecasts, but earnings would fall short in the company’s third quarter, which ends in March 2002. Full-year earnings will beat Wall Street’s estimates, the company said.
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Market Roundup: C4
