Stocks Up in 5th Straight Session
A mild inflation report drove bond yields sharply lower Thursday and helped lift major stock indexes for a fifth straight session.
The Dow Jones industrial average gained 43.47 points, or 0.4%, to 11,253.24, its highest close since May 22, 2001.
Buyers poured into the bond market after the government said its consumer price index rose 0.1% in February, compared with a 0.7% jump in January. Excluding food and energy costs, the “core” index also rose 0.1%.
The data bolstered the case of bond bulls who say the Federal Reserve is close to ending its credit-tightening campaign.
“A lot of the Street is reevaluating their position on how many more bullets [Fed policymakers] have in the gun,” said Daniel Sheppard, a fund manager at Deutsche Bank Private Wealth Management. “There has been a shift in the last few days that the Fed may be done sooner than previously thought.”
The central bank’s key short-term rate now is 4.5%. Policymakers are expected to lift that to 4.75% at their meeting March 28, but the likelihood of increases after that has been an issue of great debate.
Treasury bond yields, which had surged in recent weeks on fears that the Fed might continue to raise rates beyond 5%, tumbled Thursday, continuing a decline from what had been multiyear highs Monday.
The 10-year T-note yield, a benchmark for mortgage rates, fell to 4.64%, down from 4.73% on Wednesday and the lowest since March 2. The yield reached a 21-month high of 4.77% on Monday.
The two-year T-note yield, which is particularly sensitive to expectations for the Fed’s key rate, ended at 4.62%, down from 4.67% on Wednesday.
Bond investors also were encouraged by a Fed report showing a slowdown in manufacturing activity in the mid-Atlantic region. In addition, the Pentagon’s launch of an air assault on Iraqi insurgents drove some investors to government bonds as a haven.
Whether the peak has been reached in U.S. bond yields, however, isn’t clear. Rising yields abroad could put upward pressure on Treasury rates, some analysts say. The yield on the 10-year Japanese government bond reached 1.74% on Thursday, the highest since Aug. 2004.
In the stock market, many investors seem to be focused on the idea that the economy is in decent shape and the hope that it will stay that way, experts say.
And with the latest tame inflation report, “the good news is investors can feel somewhat more comfortable about monetary policy,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors.
Still, the stock rally lost momentum Thursday compared with the previous two sessions.
Like the Dow, the Standard & Poor’s 500 index reached its highest level since May 2001, but it rose a modest 2.31 points, or 0.2%, to 1,305.33.
The Russell 2,000 small-stock index inched up to a record high, adding 0.85 point, or 0.1%, to 743.79.
Most broad indexes also gained as winners topped losers by nearly 2 to 1 on the New York Stock Exchange.
But the technology-dominated Nasdaq composite lost 12.28 points, or 0.5%, to 2,299.56.
Among the day’s highlights:
* Energy-related stocks rallied as near-term crude oil futures rose $1.41 to $63.58 a barrel after the U.S. launched its offensive in Iraq. Marathon Oil gained $2.81 to $77.53, Schlumberger surged $3.26 to $123.80 and XTO Energy added $1.10 to $43.10.
* Weakness in semiconductor-related shares weighed on the tech sector. Broadcom slid $1.46 to $44.78 and Teradyne dropped $1.14 to $14.78.
* Many heavy-industry issues continued to advance. Illinois Tool Works jumped $1.19 to a record $97.90 after the company raised its earnings forecast for the current quarter and the year.
* Home builders’ shares were mostly higher. The government said housing starts fell in February, but the drop was less than expected. Toll Bros. rose $1.29 to $34.18 and Standard Pacific gained $1.23 to $33.82.
