Yields Fall on Tepid Data
Bond yields tumbled and most stock indexes dipped modestly Friday as a tepid employment report fueled anxiety about the economy but also eased fears that Federal Reserve policymakers would put interest rate hikes on a fast track.
The Dow Jones industrials fell 51 points, on the heels of a 101-point drop Thursday, to cinch a losing week as traders reacted to a report showing that a net 112,000 nonfarm jobs were added in June -- fewer than half the expected level.
Economists also were surprised to see the manufacturing sector lose a net 11,000 jobs after four months of gains.
“After the Fed said Wednesday that it could be ‘measured’ in raising rates, most people figured, ‘OK, now we can focus on corporate earnings again,’ ” said Sung Won Sohn, economist at Wells Fargo & Co. in Minneapolis. “But the weak employment report indicates that earnings are not going to be as strong as projected.”
The Dow lost 51.33 points, or 0.5%, to 10,282.83. The broader Standard & Poor’s 500 index dropped 3.56 points, or 0.3%, to 1,125.38. The technology-heavy Nasdaq composite fell 8.89 points, or 0.4%, to 2,006.66.
Despite the losses in key indexes, rising stocks outnumbered losers by almost 2 to 1 on the New York Stock Exchange. On Nasdaq, losers had only a slight edge over winners.
Trading volume was slow in advance of the holiday weekend.
For the week, the Dow and Nasdaq were both down 0.9%, and the S&P; 500 was off 0.8%.
Jack Caffrey, equity strategist at J.P. Morgan Chase’s private bank in New York, said that in the wake of the economic data, investors would be closely watching second-quarter profit reports this month and corporate outlooks for the second half.
“We want to hear companies say they see their business starting to improve,” Caffrey said. “That would give investors more confidence in the durability of the economic expansion.”
Bond investors were relieved as the employment report bolstered the Fed’s statement Wednesday that it hoped to maintain a “measured pace” in raising rates. The statement came as the Fed raised its benchmark short-term rate to 1.25% from a 46-year-low of 1%.
The weaker-than-expected employment report could take pressure off the Fed to accelerate additional rate hikes, some analysts said. A slowing economy also could depress inflation.
Cheered by those possibilities, investors pushed bond prices higher, driving yields lower. The benchmark 10-year Treasury note yield fell to 4.46% on Friday from 4.56% on Thursday, while the two-year T-note dropped to 2.53% from 2.64%.
The rally knocked the 10-year yield back to its late-April level and the two-year yield to its late-May mark.
“The bond market had gotten very far out in front of the Fed,” said Bill Hornbarger, fixed-income strategist at brokerage A.G. Edwards in St. Louis. “Now people are scaling back those expectations.”
He said the Fed’s key rate ultimately may be lifted to around 3.5%, but for this year he expects a series of gradual moves that will bring the rate to 1.75% or 2%.
Among the day’s highlights:
* Intel dropped 69 cents to $26.33 as two analysts cut their revenue estimates for the current quarter. Also in the chip sector, Irvine-based Broadcom fell $1.67 to $43.15, retreating for a second day from Wednesday’s 52-week high.
* Apple Computer lost $1.22 to $31.08. Apple said Thursday that its new iMac would be released in September, two months behind schedule.
* Mamma.com slumped $1.80 to $10.02 after Dallas Mavericks owner Mark Cuban said he sold his 9.2% stake in the Internet search engine company.
* Netflix, the DVD-by-mail rental outfit, tumbled $3.64 to $32.31, a day after saying subscriptions rose 82% in the second quarter, compared with 84% in the first quarter.
* Oil prices eased 35 cents to $38.39 a barrel, after rising more than $3 in the previous two days.
