Stocks Rally on Worker Productivity Data
Broad market indexes of U.S. stocks had their biggest rally in six weeks Thursday after new data indicated slowing economic activity while worker productivity remained strong.
The reports gave some investors the courage to buy ahead of today’s report on May employment. A pullback in oil prices also helped lift sentiment.
The Standard & Poor’s 500 index jumped 15.62 points, or 1.2%, to 1,285.71, its best one-day gain since April 18.
The Nasdaq composite index, which rallied 40.98 points, or 1.9%, to 2,219.86, also had its best day since April 18.
The Dow Jones industrials gained 91.97 points, or 0.8%, to 11,260.28, their best performance in a week.
Winners topped losers by more than 3 to 1 on the New York Stock Exchange.
Stocks rebounded from a dismal May, when worries about rising interest rates and inflation triggered a global sell-off.
On Thursday, data indicating weaker residential construction in April and a slowing of manufacturing activity in May revived hopes that the Federal Reserve might soon be able to pause in its nearly 2-year-old credit-tightening campaign.
Those hopes were further boosted by a government report that worker productivity rose at a 3.7% annual rate in the first quarter, better than the initially reported 3.2% gain.
The productivity figure “makes you feel better about inflation,” said Alison Deans, who helps manage $190 billion as chief investment officer of the private client services group at Lehman Bros. Holdings. That “should be good for stocks.”
The Treasury bond market also felt better: The yield on the 10-year T-note fell to 5.10% from 5.13% on Wednesday.
Although the construction and manufacturing data pointed to decelerating growth, major retailers reported stronger-than-expected sales in May, supporting the idea that the economy wasn’t in danger of slowing drastically. That is bullish for stocks because it suggests that corporate earnings will continue to grow.
In commodities trading, near-term crude oil futures dropped 95 cents to $70.34 a barrel, the second decline in a row after a government report indicated that U.S. oil and gasoline inventories rose last week as imports surged and refiners increased output.
Some traders also have been encouraged that the U.S. appears to be trying to find a way to hold negotiations with Iran over its nuclear ambitions.
A slump in gold may have stemmed from expectations of easing global tensions. Near-term gold futures in New York sank $14.90 to $627.60 an ounce.
Among the day’s highlights:
* Retail shares leading that sector higher included J.C. Penney, up $3.95 to $64.79; Sears Holding, up $8.92 to $160.79; Kohl’s, up 85 cents to $54.54; and Aeropostale, up $1.89 to $26.63.
* Financial stocks were strong on optimism about interest rates. Wells Fargo gained $1.29 to $67.66, Northern Trust rose $1.06 to $56.98 and Countrywide Financial surged $1.23 to $39.51.
* In the tech sector, Apple Computer jumped $2.40 to $62.17, National Semiconductor rose 73 cents to $26.41 and Varian was up $1.86 to $45.87.
But Novell sank $1.13 to $6.60. The provider of networking software and consulting services forecast fiscal third-quarter sales of $239 million to $247 million, less than the $283-million average forecast of analysts surveyed by Thomson Financial.
* AT&T; gained 85 cents to $26.91 after the telecom giant was raised to “sector outperformer” from “sector performer” by CIBC World Markets’ Timothy Horan. The analyst said AT&T;’s profit might rise 10% a year through 2008 after cost savings from its pending purchase of BellSouth.
* Quest Software inched up 12 cents to $14, even though the Aliso Viejo-based firm said the Securities and Exchange Commission had begun an informal inquiry into Quest’s stock option grant-making practices. Quest reported an internal investigation of its grants May 22. It is one of dozens of companies whose options-related practices are being investigated.
* Many foreign stock markets continued to rebound from their May declines. The German market gained 0.3%, Mexican stocks rallied 2.4% and the Australian market was up 1.1%. But India’s Sensex index plunged 3.2%, bringing its drop from its record high May 10 to 20%.
