Stocks Gain Despite Inflation Worries
U.S. stocks ended a winning week with a second day of gains Friday, despite a government report showing an uptick in inflation pressures. But trading was light ahead of the long holiday weekend.
Many foreign markets also continued to rebound from the recent global stock sell-off.
The Dow Jones industrial average rose 67.56 points or 0.6%, to 11,278.61, bringing its gain for the week to 1.2%.
The Nasdaq composite index added 12.13 points, or 0.6%, to 2,210.37, and was up 0.8% for the week.
Winners topped losers by more than 2 to 1 on the Big Board on Friday.
The government said a core inflation gauge closely watched by the Federal Reserve was up 2.1% in April from a year ago, exceeding the top of a 1% to 2% range that the Fed considers a safe place for inflation to be.
However, the same report showed weakness under the surface of strong April consumer spending. A separate report showed a drop in consumer confidence this month.
For investors, the latest data on the economy pointed to the likelihood of continued slowing, some analysts said. That raised new hopes that the Fed might be willing to pause in its credit tightening campaign, they said.
“The Fed is looking for a reason to pause here if they can find one,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services. “Inflation is eating into consumer spending, but it doesn’t seem to be at a level that would be a major concern.”
One reason stocks were able to rally Friday was that the bond market wasn’t riled by the inflation data, analysts said. The 10-year Treasury note yield dipped to 5.05% from 5.07% on Thursday. It was little changed from 5.06% a week earlier.
But some bond market pros said inflation pressures still could force the Fed to tighten credit further. “This is bearish for rates,” Michael Pond, an interest-rate strategist with Barclays Capital, said of the April inflation data.
For stocks, which have tumbled in recent weeks on worries about interest rates and the economy, a rebound was overdue, some traders said. The U.S. market began to turn around at midday Wednesday.
At that point, the Standard & Poor’s 500 index was down more than 5% from its recent high, and the Nasdaq index was down nearly 10% from its high.
The S&P; index, which rose 7.28 points, or 0.6%, to 1,280.16 on Friday, has trimmed its loss from its recent high to 3.4%. The Nasdaq index now is off 6.8% from its high.
The Russell 2,000 small-stock index, which gained 0.6% to 729.55 on Friday, is down 6.7% from its record high set May 5.
Many battered foreign markets also surged late in the week. The Russian RTS index rallied 4.9% on Friday, but still is down 15.3% from its recent high. India’s Bombay 500 index rose 1.9% on Friday and Brazil’s Bovespa index added 2.8%. Markets also were higher in Europe and Asia.
In commodities trading, gold edged up $2.50 to $650.90 an ounce in New York futures trading, but lost $5.80 for the week. Oil futures were up 5 cents to $71.37 a barrel for the day and up $2.84 for the week.
U.S. markets will be closed Monday for the Memorial Day holiday.
Among Friday’s highlights:
* Brokerage shares helped lead the rally on optimism about the bull market’s longevity. Goldman Sachs soared $5.62 to $152.94 and Merrill Lynch jumped $1.31 to $72.79.
* Commodity-related shares continued to rebound. Phelps Dodge rose $2.08 to $88.26 and U.S. Steel surged $2.47 to $67.47.
* Some investors favored shares of companies that tended to show steady growth even in a slowing economy. Drug maker Eli Lilly gained 65 cents to $52.27 and Kellogg was up 19 cents to $47.31, a 52-week high.
