Stocks Surge on Jobs Report
A blockbuster jobs report Friday sent stocks soaring but also fueled a sharp jump in bond yields on fears that a credit-tightening move by the Federal Reserve was growing nearer.
From Wall Street’s viewpoint, news that the nation created a net 308,000 new jobs in March provided more justification for piling back into stocks, particularly issues that would benefit from a prolonged economic recovery, analysts said.
“Weak employment had been the one fundamental cloud that had been hanging over the economy and the market -- it was the key missing ingredient to suggest that we are in a sustainable recovery,” said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. in Greenwich, Conn.
“The stock market looks at this and says that more people are working, ergo more people are going to start spending,” said Chris Orndorff, a portfolio manager with Payden & Rygel in Los Angeles. “Higher economic growth equals higher corporate profits equals higher stock prices.”
The Dow Jones industrial average surged 97.26 points, or 0.9%, to 10,470.59, led by heavy-industry and technology firms that tend to be most sensitive to the economy’s swings.
The Nasdaq composite index shot up 42.16 points, or 2.1%, to 2,057.17.
Winners outnumbered losers by 2 to 1 on Nasdaq, though winners had only a small edge on the New York Stock Exchange, where many interest-rate-sensitive shares were lower.
The rally added to recent gains that stocks have racked up after sliding for most of March.
In the bond market, meanwhile, some investors rushed to dump Treasury issues and other fixed-income securities, on concern that a quickening of the economy’s pace would push interest rates up across the board, devaluing older bonds.
Stronger growth could mean that Federal Reserve policymakers would be compelled to begin raising their benchmark short-term interest rate, which has been at a generational low of 1% since June.
Bond investors’ reaction “clearly assumes that interest rates are going higher,” Sonders said. “I think the Fed is going to wait until you have a string of better employment numbers. But the chances of a pre-election hike have certainly increased.”
The yield on the 10-year Treasury note, a benchmark for mortgage rates, rocketed to 4.14% from 3.88% on Thursday. Still, the yield is below its level of 4.25% at the start of the year.
Mortgage rates jumped with bond yields: Rates on 30-year fixed-rate loans rose between one-quarter and three-eighths of a percentage point on Friday, said Steven Foster, head of Vista Financial in North Hollywood.
If the trend continued, it could kill the mortgage-refinancing market and even hinder home sales, he said.
But many analysts cautioned against reading too much into one month’s job data. Indeed, expectations of robust employment growth helped drive bond yields sharply higher last summer. But they eased in the fall as economic data softened a bit.
“The question is how strong the economy is,” said Gary Schlossberg, senior economist with Wells Fargo Capital Markets. “To me, the numbers suggest the recovery is respectable, solid, broad-based but not spectacular.”
Donald Straszheim of Straszheim Global Advisors said the March jobs data didn’t suggest the economy was zooming.
“But I do think that the Fed is going to tighten later this year -- and that’s a good thing,” he said. “They’ll only tighten if they see real strength.”
Given that outlook, he said, it makes sense for investors to be “very bullish on equities and be very scared of bonds.”
Among Friday’s highlights:
* Industrial and commodity-related stocks rising sharply included Alcoa, up $1.27 to $35.90; nickel miner Inco, up $1.33 to $36.43; Caterpillar, up $2.20 to $81.20; and Reliance Steel, up $1.28 to $35.85.
* In the tech sector, IBM jumped $1.83 to $94.20, Broadcom rose $1.67 to $41.40, and Cisco Systems added 69 cents to $24.43.
* Internet-related shares also were strong. EBay gained $1.52 to $73.77, and Monster Worldwide surged $1.97 to $28.26.
* On the downside, shares of home builders sank as mortgage rates rose. KB Home slid $3.60 to $76.60, and Ryland dropped $4.43 to $84.07.
Mortgage lenders also fell. Wells Fargo lost 64 cents to $56.61 and Countrywide Financial dived $4.79 to $91.25.
* Standard & Poor’s index of small-company stocks jumped 1.2% to a record high of 292.09.
*
Market Roundup, C4
