Stocks Retreat After Big Rally
Bond yields notched their biggest increase in two months Friday as new data showed upticks in consumer confidence and a key inflation gauge.
Stocks retreated slightly after Thursday’s huge rally, closing out a volatile week that ultimately led to little change in the major indexes.
In the wake of the strong economic readings, a slump in Treasury prices sent the yield on the benchmark 10-year T-note to 3.83% from 3.74% on Thursday. It was the largest one-day climb since Jan. 28. The two-year yield jumped to 1.58% from 1.51%.
Analysts said traders were reacting not only to the data but also to hints this week from a Federal Reserve governor that interest rate increases could be on the horizon.
What’s more, some say the recent Treasury rally became overdone in the wake of February’s dismal U.S. employment creation.
“Bonds got overvalued,” said Richard DeKaser, chief economist at National City Corp. in Cleveland. “We’re getting more and more good news” on the economic front.
One of the Fed’s favored inflation gauges, the so-called core personal expenditure deflator, edged higher by 0.1% in February, the Commerce Department said. The measure tracks the cost of most personal goods and services, including housing and clothing, but excludes the volatile food and energy categories. The report was in line with expectations but signaled that inflation had bottomed and was creeping upward, said economists at Northern Trust Co. in Chicago.
Consumer confidence, as tracked by the University of Michigan’s monthly survey, rose to an index level of 95.8 in March, up from 94.4 in February and topping Wall Street’s forecasts.
Significant inflation would erode the value of fixed-income securities such as Treasury bonds.
Stock prices fell only moderately Friday as equity investors took the inflationary signs as modest enough to be healthy, on balance, for the economy.
The Dow Jones industrial average slipped 5.85 points, or 0.1%, to 10,212.97. The broader Standard & Poor’s 500 index slid 1.13 points, or 0.1%, to 1,108.06. The technology-heavy Nasdaq composite dropped 7.15 points, or 0.4%, to 1,960.02.
Advancing stocks outnumbered decliners by thin margins on both the New York Stock Exchange and on Nasdaq.
On the week, results were mixed for the major indexes: The Dow rose 0.3% and Nasdaq gained 1%, but the S&P; 500 fell 0.2%.
National City’s DeKaser noted that after U.S. payrolls climbed by 21,000 in February -- just one-sixth of what economists had been expecting -- some doubted the sustainability of the U.S. recovery that has led to higher corporate profits and stock prices.
In the last two weeks, however, initial claims for unemployment benefits have been far below the widely watched 400,000 level. When the Labor Department issues March payroll figures April 2, DeKaser expects the economy will have added 138,000 jobs, above the Wall Street consensus of 120,000.
“February’s weakness was more of a fluke than an underlying trend,” he said.
On the currency market, gold futures rallied Friday as investors sought a hedge against inflation. The metal rose to $422.10 an ounce from $416.70.
In equity highlights:
* Upgrades in the drug distribution sector by Goldman Sachs boosted McKesson, which gained $1.14 to $29.40, and Cardinal Health, which advanced $3.40 to $67.35.
* SuperGen surged $2.25 to $12.68 after regulators agreed to review its compound Orathecin as a possible treatment for pancreatic cancer.
* Among blue-chip names, McDonald’s slid 58 cents to $27.87 and Intel sagged 41 cents to $27.38.
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Market Roundup, C5
