Stock Indexes Climb as Oil Prices Decline
Stocks climbed Thursday as strong April retail sales and a steep drop in oil prices alleviated investors’ worries about a greater-than-forecast jump in labor costs.
The day’s headlines brightened the economic picture, with retailers reporting their best monthly sales in two years as consumers spent freely despite the recent jump in gasoline prices. Wall Street also welcomed upbeat earnings from Tyco International.
Although the Labor Department said U.S. worker productivity rebounded in the first quarter, a sharp rise in wage costs stoked concerns about inflation as the market continued speculating the potential for more interest rate hikes from the Federal Reserve.
But William Hummer, chief economist for Wayne Hummer Investments, said he was not surprised by the higher labor costs given the brisk pace of economic growth, noting that the annualized wage inflation rate of 1.4% was relatively tame.
“The economy is resilient, more than most thought, and I think that could very well continue into the second half,” Hummer said. “Headwinds of interest rates and energy costs will diminish the momentum somewhat, but not in a major way.”
The Dow Jones industrial average gained 38.58 points, or 0.34%, to 11,438.86, its best close since reaching 11,489.59 on Jan. 19, 2000. The Dow is 284 points, or 2.4%, from an all-time high of 11,722.98 from early January 2000.
Broader stock indicators advanced. The Standard & Poor’s 500 index rose 4.40 points, or 0.34%, to 1,312.25, and the Nasdaq composite index surged 19.93 points, or 0.87%, to 2,323.90.
Advancing issues led decliners by 5 to 3 on the New York Stock Exchange.
The dollar fell against the euro, which rose to $1.272, its highest level in nearly a year. Gold futures rose $8.30, to $674.20.
The yield on the 10-year U.S. Treasury note edged higher to 5.15%, from 5.14% on Wednesday. The stabilizing bond market eased investors’ ongoing inflation and interest rate jitters and helped the major indexes close in on multiyear highs, said Steven Goldman, chief market strategist for Weeden & Co.
“We still have a great deal of momentum,” Goldman said. “Stocks should continue to edge higher with modest setbacks along the way.”
The market faces its next test today, when the Labor Department reports data on monthly job growth and wages.
Nonfarm payrolls are expected to decrease by 11,000 workers to 200,000 for April, while average hourly earnings are seen growing 0.3%.
Traders sold off crude futures for a third straight day after government data on Wednesday showed a rebound in gasoline supplies ahead of the summer driving season. A barrel of light crude lost $2.34 to settle at $69.94 in New York trading.
The Labor Department said worker productivity grew 3.2% for the first three months of the year, beating economists’ estimates of 2.8% and reversing a fourth-quarter decline of 0.3%. However, quarterly wage costs rose 2.5%, down from 3% in the fourth quarter but more than twice the consensus target of 1.2%.
Wall Street also digested an unexpected rise in weekly unemployment claims, although the job market appeared to be in good shape.
The department said first-time jobless claims added 7,000 to reach 322,000 last week, above estimates of 310,000.
In other market highlights:
* Strong April sales reports gave retail stocks a boost. Wal-Mart Stores confirmed its sales grew a better-than-expected 6.8% last month, but shares slid 29 cents to $46.40. Gap’s monthly sales slid 3% but topped estimates for a 4.7% drop; Gap added 13 cents to $18.16.
Los Angeles-based Guess climbed $2.03, to $46.70, after reporting a 22.6% increase in April sales. The retailer’s shares have gained 31% this year.
* Tyco said its profit grew fivefold last quarter, but the manufacturing conglomerate cut its full-year outlook. Tyco nonetheless rose 98 cents to $27.92.
* Industrial shares gained 1% for the biggest jump among 10 groups in the S&P; 500. General Electric, the world’s biggest maker of power-generation equipment, added 40 cents to $34.80.
* Starbucks added $1.44 to $38.79. The world’s largest coffee shop chain boosted its profit forecast for the fiscal year to as much as 72 cents, from an earlier estimate of up to 70 cents. Fiscal second-quarter profit rose to 16 cents a share, 2 cents more than analysts’ estimates, after it added green tea drinks and opened more than 400 stores.
* Whole Foods Market jumped $8.27, or 13%, to $70.42 for the best performance in the S&P; 500. Profit climbed to 36 cents a share on new store openings. The company also lifted its projection for fiscal 2006 same-store sales to 10% to 12%, from an earlier range of 8% to 11%.
* Eastman Kodak posted its sixth straight quarterly loss and said it was considering the sale of its health-imaging business. Kodak sank 59 cents to $26.76.
