Market Starts Month Strong as Rally Continues
The stock market continued to shake off disappointing economic data Friday, giving key indexes their fourth straight weekly gain.
With the Federal Reserve poised to cut short-term interest rates next week, more investors may be betting that stocks are a better alternative to bonds and to short-term cash accounts in the near term, analysts said.
The Dow industrials rose 120.61 points, or 1.4%, to 8,517.64, and added 0.9% for the week.
The Nasdaq composite advanced 30.95 points, or 2.3%, to 1,360.70, and finished 2.2% higher for the week. Nasdaq had not had a four-week winning streak since November 2001.
The Standard & Poor’s 500 index, which jumped 15.20 points, or 1.7%, to 900.96 on Friday, posted a gain of 0.4% for the week.
Analysts attributed the rally in part to the buying momentum that built up throughout October. Stocks began to rebound at mid-month from five-year lows, helped in part by some better-than-expected corporate earnings reports.
“Investor psychology has changed. The market has become very resilient to bad news. Today is a good example of that,” said Michael Murphy, head trader at Wachovia Securities in Baltimore. “Nobody wants to be left behind.”
Winners topped losers by 23 to 9 on the New York Stock Exchange and by 2 to 1 on Nasdaq.
The market’s advance gained steam through Friday’s session, despite downbeat reports on October employment, auto sales and manufacturing activity.
The economic news appeared to cement expectations that Fed policymakers will cut their benchmark short-term interest rate when they meet Wednesday.
The Fed’s rate is 1.75%, a 40-year low. A Reuters survey of 22 Treasury bond dealers showed that 21 expected a rate cut. Most believed the Fed would trim the rate by 0.25 point, to 1.5%.
That would be the first Fed cut in 11 months.
Though many economists question whether another drop in rates would make much difference to potential borrowers, experts said a reduction could be a confidence builder for some businesses and consumers as the economy struggles to regain momentum.
“In the short run, corporate restructuring will probably lead to further job cuts during the next several months -- hence the need for further Fed action,” said Bruce Steinberg, chief economist at Merrill Lynch.
In the Treasury bond market, yields rose Friday after falling for much of the week. Traders said that although the market continued to expect a Fed rate cut, the Treasury’s plans to sell $40 billion in new long-term bonds next week weighed on sentiment.
“It’s the fear of supply hitting the market” that is hurting Treasuries, Bret Barker, who handles government debt investments at Metropolitan West Asset Management in Los Angeles, told Bloomberg News.
The 10-year T-note yield ended Friday at 4%, up from 3.9% Thursday. The two-year T-note yield ended at 1.77%, up from 1.67%.
Still, yields were lower than a week ago, when the 10-year note was at 4.09% and the two-year note was at 1.98%.
Among Friday’s highlights:
* Shares of semiconductor makers helped lead the tech sector higher. Intel rose $1 to $18.30, National Semiconductor gained $1.22 to $14.50, and Broadcom gained $1.03 to $13.01.
* Energy-related stocks attracted buyers. Anadarko Petroleum gained $1.28 to $45.82, and Baker Hughes gained $1.40 to $30.45.
* Financial issues rallied. Goldman Sachs rose $1.85 to $73.45, and Bank One gained $1.16 to $39.73.
* Overture Services tumbled $4.48 to $23.05 after the Internet search provider was downgraded to “in line” from “outperform” by Salomon Smith Barney, which cited increased competition.
* H&R; Block dived $3.43 to $40.95 over shareholders’ concerns about several lawsuits the tax preparer faces over its refund-anticipation loans.
