Economic Data Lift Stocks
A wide swath of good news, including better-than-expected retail sales and worker productivity figures and a major court victory for Merck, drove stocks higher Thursday, although a jump in oil prices limited the gains.
Wall Street’s inflation worries were mollified by the latest government report on productivity, which rose at an annual rate of 4.1% in the third quarter, the biggest rise in a year. With workers more productive, they can be paid more without increasing the risk of inflation.
And although investors remain cautious about consumer spending this winter because of high heating prices, October’s retail sales reports were generally stronger than expected, with Wal-Mart Stores, Costco Wholesale and Nordstrom all surpassing expectations.
Stock buyers received further encouragement by a report showing growth in the service sector. The Institute for Supply Management’s services index rose to 60 in October from 53.3 in September and three points better than economists had forecast.
Yet the market received a harsh reminder of the long-term problems the economy faced as oil prices surged $2.03 to settle at $61.78 a barrel on the New York Mercantile Exchange. The jump in oil ate into some of the market’s gains and brought to mind what may lie ahead: high energy prices, inflation and a drop in fourth-quarter consumer spending.
“That’s a lot of good news that’s driving the market today,” said Hugh Johnson, chief investment officer at Johnson Illington Advisers. “But ... who knows what the market will tell us tomorrow? It’s been an on-again, off-again market. Today it’s on again.”
The Dow Jones industrial average rose 49.86 points, or 0.5%, to 10,522.59.
Broader stock indicators also moved higher. The Standard & Poor’s 500 index added 5.18 points, or 0.4%, to 1,219.94, and the Nasdaq composite index climbed 15.91 points, or 0.7%, to 2,160.22.
Bond yields reached fresh seven-month highs after Federal Reserve Chairman Alan Greenspan said he was bullish on the economy, telling a congressional hearing that the economic effect from the recent spate of hurricanes was temporary and that the economy remained sturdy.
The yield on the benchmark 10-year Treasury note rose to 4.65% from 4.6% on Wednesday.
“Everyone assumes the Fed is going to be coming at this economy with higher interest rates, so it’s nice to have a running start,” said Jack Ablin, chief investment officer at Harris Private Bank. “The better shape our economy is in, the better we’ll be able to withstand the rate hikes and avoid a hard landing.”
Investors’ improving take on the economy was backed by the Labor Department’s weekly report on first-time unemployment claims, which neared their pre-Hurricane Katrina levels. Only 19,000 layoffs were attributed to hurricane-related causes last week. A total of 323,000 new jobless claims were filed, the lowest weekly total since before Katrina hit the Gulf Coast region.
In other market highlights:
* Merck jumped $1.07, or 3.8%, to $29.48 after a New Jersey jury found the drug maker did not commit consumer fraud and did not hide risks associated with its Vioxx painkiller from patients and doctors. The decision was a major victory for the drug maker and could potentially forestall other lawsuits related to problems stemming from the drug.
* Nordstrom added 85 cents to $36.60 after it posted strong October sales that beat analysts’ projections. Costco also beat expectations with 10% sales growth in stores open at least a year; its shares gained 16 cents to $48.67. Yet Wal-Mart fell 11 cents to $47.45 despite reporting a 4.3% increase in same-store sales.
* Prudential Financial, the No. 2 U.S. life insurer, gained $3.81 to $75.60 after it said third-quarter profit before investment gains and losses was $1.46 a share, beating expectations.
