Stocks Rise on Jobless News
Stocks rebounded Thursday, helped by government data showing that initial claims for jobless benefits declined last week and by an upbeat outlook from IBM. The market chose to look past some other reports that suggested that the economy remained weak.
The rally in Treasury bonds, which had pushed longer-term yields to generational lows Wednesday, largely stalled out, though yields on 30-year bonds continued to fall.
On Wall Street, the Dow Jones industrials closed up 65.32 points, or 0.8%, at 8,713.14 as rising stocks outnumbered losers by 5 to 3 on the New York Stock Exchange.
The Standard & Poor’s 500 index gained 7.39 points, or 0.8%, to 946.67, the highest close since late August.
The Nasdaq composite index hit an 11-month high, jumping 16.48 points, or 1.1%, to 1,551.38.
The drop in jobless claims heartened investors who have been hoping to see the employment situation improve -- which could help bolster consumer spending in the second half.
Also, IBM’s chief executive on Wednesday told analysts that the technology spending situation had stabilized. The stock rose $1.20 to $89.90 on Thursday.
A strong report on May manufacturing activity in New York state buoyed sentiment as well.
“We’re turning the corner and things are getting better,” Al Kugel, investment strategist at Stein Roe Investment Counsel in Chicago, told Bloomberg News. “Investors are swinging from feeling stocks would never go up to saying, ‘The train may be pulling out of the station, and maybe I ought to put some money on board.’ ”
But the news wasn’t all good Thursday. The government said factory production fell in April, and so did wholesale prices. The latter report renewed concerns about deflation, which the Federal Reserve warned about last week -- a warning that suggested the central bank might cut interest rates further.
Despite the news on wholesale prices, yields on most maturities of Treasury bonds ended higher as some investors took profits. The 10-year T-note yield, which fell to a 45-year low of 3.52% on Wednesday, inched up to 3.53% on Thursday. The two-year T-note ended at 1.44%, up from 1.38%.
But the yield on the longest-term T-bond, the 30-year issue, continued to slide, ending at a record low 4.48%, down from 4.51% on Wednesday. The yield was at 4.78% on Jan. 1.
Stock market bulls are choosing to view the latest decline in interest rates as a positive sign for equities, rather than as a sign that the hoped-for economic rebound will fail to materialize.
“While things aren’t great yet, they are starting to look up,” said Ed Peters, chief investment officer at PanAgora Asset Management Inc. “As long as interest rates stay low, it will put a bottom on the stock market.”
Meanwhile, the euro suffered its biggest drop against the dollar in six weeks on news that the economies of Germany, Italy and the Netherlands shrank in the first quarter. That boosts the chances that the European Central Bank will cut interest rates, analysts said. The euro ended at $1.14, down from $1.151 on Wednesday.
Among Thursday’s market highlights:
* Tech shares gaining with IBM included Computer Associates, up $2.07 to $20.26; Broadcom, up 91 cents to $20.95; IPayment, up $1.15 to $21.53; and Avaya, up 79 cents to $6.39. Chip maker Analog Devices jumped $1.24 to $35.24 after reporting a surge in quarterly income.
* Utility stocks were strong, which some analysts said reflected expectations that Congress would agree to President Bush’s plan to end taxation of dividends. The companies typically pay high dividends. The Dow utility index jumped 3.90 points, or 1.7%, to 230.65.
* Retail stocks were mostly lower, led by Target after it reported weaker-than-expected quarterly earnings. Target fell $1.47 to $34.46, Coach lost $1.15 to $45.73 and Limited fell 50 cents to $13.80.
* Brokerage stocks rallied. Charles Schwab gained 67 cents to $9.77 after saying trading activity rose sharply in the first nine days of May. Merrill Lynch was up $1.16 to $42.92, and E-Trade added 45 cents to $6.87.
* Mexico’s main stock index rose 1.3% to 6,633.51, lifting its year-to-date gain to 8.3%. Interest rates in Mexico have fallen to record lows this week.
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Market Roundup, C6-7
