Stocks Gain, Bonds Lose on Fed Cut
Stocks rebounded Thursday even as bond yields continued to rise, suggesting that the two markets are parting ways after rallying together this spring.
Most major stock indexes rallied between 1% and 3%, while the yield on the benchmark 10-year Treasury note surged to 3.54%, up from 3.40% Wednesday and 3.25% Tuesday.
The Federal Reserve’s decision Wednesday to cut its key short-term interest rate by a quarter-point, instead of the half-point some investors had expected, reinforced the idea that the central bank believes the economy is on the mend, analysts said.
That would be positive for stocks but could be negative for bonds if investors begin to anticipate that rates have reached rock bottom and are likely to be higher a year from now.
The Fed “was perceived as slightly more bullish on the economy and slightly less worried about deflation,” Jon Blumenfeld, an interest rate strategist at Commerzbank Securities in New York, told Bloomberg News.
Longer-term bond yields rose across the board Thursday as prices of the securities slumped. The two-year T-note yield jumped to 1.41% from 1.28% Wednesday. The two-year T-note and 10-year T-note yields now are the highest since mid-May, after reaching 45-year lows in recent weeks.
In the stock market, by contrast, rising stocks outnumbered losers by nearly 2 to 1 on the New York Stock Exchange and by 5 to 3 on Nasdaq.
The Dow Jones industrial average gained 67.51 points, or 0.8%, to 9,079.04, after losing 98 points Wednesday.
Broader indexes fared better Thursday, as they did Wednesday. The Standard & Poor’s 500 rose 10.50 points, or 1.1%, to 985.82; the technology-heavy Nasdaq composite shot up 31.35 points, or 2%, to 1,634.01.
A report Thursday suggesting that layoffs might be stabilizing helped raise optimism about the economy, analysts said.
The market’s next major focus will be second-quarter corporate earnings reports. Investors will be closely monitoring how companies characterize their profit outlooks for the second half, experts say. A continuing rebound in earnings could draw more investors to stocks and away from bonds -- the classic pattern at the start of an economic revival.
Among Thursday’s highlights:
* Tech stocks led the rally. Intel rose 59 cents to $20.63, Xilinx gained $1.06 to $25.96, Agile Software added 93 cents to $9.65 and Yahoo was up $1.55 to $32.90.
* Airline stocks rose sharply, led by AMR, parent of American Airlines, which surged $1.82 to $10.90 after at least two analysts lowered their second-quarter loss estimates for the company.
Northwest Airlines rose 82 cents to $11.50, and Continental Airlines gained 80 cents to $15.25.
* Companies facing asbestos-related liabilities rose after the Senate Judiciary Committee agreed to boost a fund for asbestos victims, a move that could end a flood of lawsuits against the companies. USG rocketed $2.26 to $21.32, and W.R. Grace rose 55 cents to $4.50.
* Some small and mid-size California banks and financial services firms attracted buyers. ITLA Capital gained $1.40 to $39.20, UnionBanCal jumped $1.09 to $41.15 and Mid-State Bancshares rose $1.26 to $19.65.
* Among Southern California firms, industrial pipe maker Ameron soared $3.55 to $33.55 after reporting higher sales and profit for the quarter ended May 31.
* In currency trading, the dollar rose to a five-week high against the euro, bolstered by optimism about the U.S. economy. The euro fell to $1.143 from $1.156 Wednesday.
* In commodity trading, natural gas futures in New York fell more than 8% to a seven-week low after the government said inventories soared by a record amount last week, easing concern about shortages.
Gold declined as the dollar strengthened. Near-term gold futures in New York lost $5.40 to $343.90 an ounce.
Market Roundup, C6-7
