Stocks Rise as Bond Yields Fall
Buyers swarmed in the stock market Tuesday, pushing blue-chip indexes to their best levels since 2001, as bond yields tumbled from recent multiyear highs.
A strong earnings report from brokerage Goldman Sachs helped drive financial stocks up sharply.
The Standard & Poor’s 500 index rose 13.35 points, or 1%, to 1,297.48, its biggest one-day gain since Jan. 3.
The Dow Jones industrial average rallied 75.32 points, or 0.7%, to 11,151.34.
The S&P; and the Dow ended at their highest levels since May 2001 and June 2001, respectively.
Treasury bond yields dived after the government said retail sales fell 1.3% in February, a larger-than-expected decline.
Some pullback in spending had been expected because consumers had flocked to stores in January amid unseasonably warm weather in much of the country.
But the extent of the slide in spending gave some bond investors hope that economic growth might slow soon, which in turn could take pressure off the Federal Reserve to continue tightening credit beyond one or two more moves.
As investors snapped up bonds, the yield on the 10-year Treasury note tumbled to 4.69%, down from a 21-month high of 4.77% on Monday. Bond yields fall as the securities’ prices rise.
The two-year T-note yield fell to 4.63% from 4.73%.
“We think bonds represent pretty good value right now,” said Alex Powers, a managing director at U.S. Trust Co. “Consumption will be lower and the economy will be slowing down as the year goes on.”
Analysts said “short covering” also helped stoke the bond rally: Some traders who had borrowed bonds and sold them, betting that prices would continue to slide, rushed to buy securities to close their bets.
Bond yields have been rising since January in the U.S., Europe and Japan on signs of strength in the global economy.
Concern about interest rates had triggered a pullback in some equity markets in recent weeks, but buyers have returned in the last few days.
The slide in Treasury yields Tuesday gave bullish investors another reason to buy stocks, analysts said.
“Given the drop in bond yields, stocks, which were comparatively cheap before, have become even more attractive to buy,” said Tim Biggam, options strategist at Man Securities in Chicago.
Despite weaker February retail sales, the economy still is on track for a strong first quarter, many analysts say.
In a healthy sign, the stock market’s rally Tuesday was broad-based, although trading volume was subdued. Winners topped losers by nearly 3 to 1 on the New York Stock Exchange.
The NYSE composite index rose 1% to a record 8,197.60, topping the previous peak of 8,139.67 reached Feb. 27. The index is up 5.7% year to date.
The technology-heavy Nasdaq composite advanced 28.87 points, or 1.3%, to 2,295.90, although it remained below its recent multiyear high of 2,331.36 on Jan. 11.
Wall Street largely ignored another rise in oil prices. Near-term crude futures in New York jumped $1.33 to $63.10 a barrel.
Among the day’s highlights:
* Industrial issues were strong, a sign that investors continued to bet on a healthy economy. DaimlerChrysler gained $1.07 to $57.45, Illinois Tool Works jumped $1.55 to $93.90 and U.S. Steel added $2.24 to $57.68.
* Home builders rebounded on hopes for lower interest rates. KB Home surged $3.11 to $66.45 and Centex jumped $3.16 to $64.69.
* Goldman Sachs soared $8.70 to $149.42 on its earnings report. Also in the brokerage sector, Merrill Lynch gained $1.50 to $78.82 and Lehman Bros. rose $3.08 to $145.30.
* Chipotle Mexican Grill leaped $5.29 to $48.70. The restaurant chain, which went public in January, said fourth-quarter profit was 16 cents a share as sales surged 36%. Five analysts surveyed by Thomson Financial had expected 11 cents.
* Energy-related stocks continued their recent rebound. Chevron rose $1.17 to $56.35. Hydril, a supplier of parts and equipment to oil drillers, jumped $2.02 to $72.40.
* On the down side, Procter & Gamble slid $1.97 to $60.01. The consumer products giant Monday slightly narrowed a sales growth projection for the current quarter.
* In foreign trading, Mexico’s main market index gained 1.3% and the Brazilian market rebounded 2%.
But one of the hottest markets of the last year -- the Saudi Arabian market -- continued to dive. The Tadawul index plunged 4.7% to 14,900. It has tumbled 28% since reaching an all-time high Feb. 25. Some analysts said the market had simply become overpriced.
