Sanguine Scenario Boosts Stock Indexes
Investors pushed blue-chip stocks close to their 2006 highs Friday after benign inflation data and low oil prices boosted confidence that the Federal Reserve will keep interest rates steady at its meeting next week.
The market finished the week broadly higher amid its strongest winning streak in more than a month. The Dow Jones industrial average ended 162 points away from its all-time closing high set in 2000.
Wall Street remained upbeat heading into Wednesday’s Fed meeting, where central bankers are expected to keep their benchmark short-term rate unchanged at 5.25%.
Data in recent weeks have largely backed projections that the slowing economy is headed for a soft landing. Helping to make the case Friday was the Labor Department’s August consumer price index, as well as the University of Michigan’s latest consumer sentiment report.
Although many stock strategists say the market already expects the Fed to keep rates steady next week, the recent decline in energy prices could add to confidence that policymakers will remain on hold for the rest of this year and into 2007.
“Inflation appears to be decelerating,” said Alan Gayle, who helps invest $70 billion as senior strategist at Trusco Capital Management. “Some of the risks that have been in the market are gradually clearing away. We view this as encouraging.”
The Dow advanced 33.38 points, or 0.3%, to 11,560.77, leaving it 162.21 points away from its record close of 11,722.98 reached Jan. 14, 2000.
Among broader indexes, the Standard & Poor’s 500 added 3.59 points, or 0.3%, to 1,319.87, nearing a five-year high set in May. The Nasdaq composite rose 6.86 points, or 0.3%, to 2,235.59, although it still is 5.7% below its 2006 high set in April and 56% below its all-time high reached in 2000.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange as trading volume spiked because of the quarterly expiration of stock index futures and options contracts.
For the week, the Dow rose 1.5%, the S&P; 500 gained 1.6% and the Nasdaq rallied 3.2%.
Bond yields were little changed Friday, with the 10-year Treasury note flat at 4.79%. Yields have been hovering near five-month lows in recent weeks.
Crude oil futures rose 11 cents to $63.33 a barrel in New York, but the price fell $2.92 for the week amid mounting supplies.
In other market highlights:
* Ford Motor plunged $1.07, or 12%, to $8.02. The automaker said it will slash its management and blue-collar headcount and cut operational costs by $5 billion through 2008.
Wall Street felt the plan fell short of what Ford needs for a turnaround.
DaimlerChrysler sank $3.54, or 6.7%, to $49.36 after cutting its outlook. The German automaker said its Chrysler unit is “facing a difficult market environment” because of excess inventory and costly obligations to employees and retirees.
General Motors slid $1.30 to $31.66.
* United Technologies surged $1.61 to $64.61, buoying the Dow, after the conglomerate said it would boost its stock-buyback program.
* Adobe Systems, which makes graphics software such as Photoshop, led technology shares higher. After reporting better-than-expected results late Thursday, the company provided guidance that soothed fears that sales would weaken in the current quarter. Adobe jumped $3.35, or 10%, to $37.
* Dynegy rose 31 cents, or 5.4%, to $6.07 after agreeing to buy generating plants from LS Power Group for $2.3 billion.
* Home builders attracted bargain hunters. The stocks have recently hit 52-week lows as the housing market has continued to slow. KB Home rose $1.50 to $45.70 and Lennar gained $1.11 to $46.39.
* Drug maker Schering-Plough advanced 22 cents to $21.33 on reports that it was trying to engineer a merger with rival Bristol-Myers Squibb. Bristol-Myers added 24 cents to $24.92.
