Stocks Rally as Investors Set Sights on Rate Cuts
Stocks climbed Friday as investors looked to the bright side of a dire U.S. jobs report and bet on more aggressive interest-rate cuts from the Federal Reserve to jump-start the economy.
Major stock-market indexes initially fell after the Labor Department reported the economy lost jobs in April at the fastest pace in a decade. But losses evaporated by early afternoon on speculation the Fed will cut interest rates deeper to spur growth, which should benefit stocks and corporate earnings.
“Clearly, investors are looking at the silver lining instead of the dark cloud,” said Erik Gustafson, a money manager at Stein Roe & Farnham Inc. “The market is strong in the face of the actual statistics because it’s anticipating improvement six to nine months down the road.”
The technology-heavy Nasdaq composite index gained 45.33 points, or 2.1%, to end at 2,191.53, after falling more than 2% in early trading. The index was up 5.6% for the week.
The Dow Jones industrial average jumped 154.59 points, or 1.4%, to 10,951.24, putting it up 1.3% for the week. Of the 30 stocks in the average, only five declined Friday.
The broader Standard & Poor’s 500 index advanced 18.03 points, or 1.4%, to 1,266.61, bringing its weekly gain to 1.1%.
Winners handily beat losers by 2 to 1 on the New York Stock Exchange, and by 3 to 2 on Nasdaq. Trading was active in both markets.
Investors are betting the Labor Department report of the steepest drop in nonfarm payrolls since February 1991 will prompt the Fed to lower rates by half a percentage point at its next policy-setting meeting May 15. The Fed probably will cut rates at least a quarter-point more this summer, investors said.
“A more robust economy means that earnings growth and capital expenditures can rebound from this negative growth rate we’ve been suffering,” said John Cabell, an asset manager at USAA Investment Management Co.
The Fed already has lowered interest rates by two percentage points so far this year.
Major market indexes fell sharply early this year, but hopes that the economic slowdown would be brief and shallow have since boosted stocks, pushing the Dow into positive territory for the year. The Nasdaq is up 33.7% from its nearly 2 1/2-year low April 4.
Still, more tech-related companies declined after rolling out disappointing quarterly earnings reports.
Software and service provider Wind River Systems, for one, lost 66 cents to end at $25.52. It warned of an earnings shortfall after customers postponed projects because of weak business conditions, and it will cut staff and reduce executive pay to trim overall costs.
Consumer electronics retailer RadioShack reported a drop in April sales at stores open at least a year, citing the slowing economy and subsequent drop in business. Its stock sank $1.46, or 4.8%, to $29.25.
Among Friday’s highlights:
* BEA Systems Inc. shares fell $3.88 to $35.98 and were among the most active stocks after a Deutsche Banc Alex. Brown analyst said he had learned the software company might be cutting sales quotas, adding that he is concerned that BEA’s components business was down 40% in the latest quarter.
* Gasoline futures rose, boosting oil companies’ stocks in anticipation of strong gasoline prices this summer. Oil giant and Dow component Exxon Mobil rose $1.45 to $87.55. Chevron advanced $1.65 to $93.35. Gasoline for June delivery rose 1.32 cents, or 1.2%, to $1.0843 a gallon on the New York Mercantile Exchange. The contract gained 3.7% for the week.
* The prospect of more Fed rate cuts spurred a rally in the bond market, especially among securities with shorter maturities. The yield on the two-year Treasury note, which moves in the opposite direction of its price, fell to 4.14% from 4.21% on Thursday. The yield on the benchmark 10-year note slipped to 5.19% from 5.20%.
