Rallies Halt in Stocks, Bonds
Investors turned more doubtful Friday about a “Goldilocks” scenario for the economy after the government reported a weaker-than-expected gain in jobs in May.
The news sent Wall Street mostly lower, clipping 92 points off the Dow average and leaving major stock indexes down for the week.
Long-term Treasury bond yields, meanwhile, ended the day sharply higher after hovering at 14-month lows the previous two sessions.
In recent weeks, powerful rallies in both stocks and bonds suggested that many investors were betting on a Goldilocks outlook for the economy: Growth wouldn’t be too fast or too slow but just right -- allowing the Federal Reserve to halt its credit-tightening campaign sooner rather than later.
The job report, however, raised fresh worries that the economy’s growth, and corporate earnings, might disappoint investors in the second half of 2005, some analysts said.
“Unless and until business starts hiring and spending aggressively, the best we can hope for is an anemic, real-estate-fueled economy,” Barry L. Ritholtz, chief strategist at brokerage Maxim Group in New York, said in a report to clients after the employment report.
Another climb in oil prices, lifting near-term crude futures $1.40 a barrel to a six-week high of $55.03, further soured the mood on Wall Street.
The Dow Jones industrial average fell 92.52 points, or 0.9%, to 10,460.97, as 27 of the index’s 30 member stocks lost ground.
The broader Standard & Poor’s 500 index shed 8.27 points, or 0.7%, to 1,196.02. The technology-heavy Nasdaq composite index, which has led the market’s recent advance, was hit harder, sinking 26.37 points, or 1.3%, to 2,071.43.
On modest volume, losers outnumbered winners by about 4 to 3 on the New York Stock Exchange and by 3 to 2 on Nasdaq.
In the holiday-shortened four-day week, the Dow lost 0.8%, while the S&P; 500 and the Nasdaq both dipped 0.2%. The loss snapped Nasdaq’s four-week winning streak.
Some market bulls, however, said they still expected share prices to move higher.
“Stocks look cheaper and cheaper when compared with their two alternatives -- bonds and real estate,” said Ed Keon, chief strategist at Prudential Equity Group in New York.
The bond market, meanwhile, appeared to pull back from the confident view earlier in the week that the Fed was nearly done tightening credit.
The May employment report kicked off a fierce bond rally early Friday, but profit taking at the end of a torrid week for the Treasury market left yields sharply higher on the day.
After falling to as low as 3.82% early in the day from 3.89% on Thursday, the yield on the benchmark 10-year T-note jumped to finish at 3.98%.
Even with that snapback, Treasury yields finished lower on the week. The 10-year T-note was at 4.07% a week ago.
Some bond analysts said the rally was overdue for a setback, since the T-note yield has tumbled from 4.3% early in May. Falling yields mean bond prices are rising, so traders who bet on bonds last month are sitting on hefty gains.
Eric Hiller, chief interest rate strategist at Bank of America Corp. in Chicago, cautioned that bond market volatility could continue next week.
Fed Chairman Alan Greenspan speaks publicly Monday and Thursday, and investors will be scrutinizing any comments he makes on the economy overall, the housing market, sluggishness in the European economy and other topics, Hiller said.
Investors also will be curious to hear whether Greenspan backs up -- or backs away from -- the surprising comments of Richard Fisher, the president of the Fed’s Dallas branch, who helped accelerate this week’s bond rally by saying Wednesday that the central bankers were in the “eighth inning” of their rate-boosting campaign.
“Bond yields definitely could go lower,” Hiller said. “But near-term, until we get through Thursday, I don’t see a reason to buy the market.”
Among the day’s highlights:
* Apple Computer slid $1.80 to $38.24 after a report on Appleinsider.com, a website that discusses company topics, said the firm was overstocked with iPod digital music players. Apple said it wouldn’t comment on the speculation.
Also in the tech sector, IBM fell $1.56 to $75.79 and Intel was off 26 cents to $27.33.
* Build-A-Bear-Workshop skidded $5.79 to $22.11. The retailer said sales this quarter would fall short of expectations.
* Oil-field services firm Schlumberger climbed $1.21 to $71.12 on an analyst upgrade from Smith Barney amid rising crude prices.
