Investors wrestle with strong job growth data
Wall Street ended an erratic session essentially flat Monday as investors grew anxious about upcoming first-quarter earnings reports and the possibility that interest rates won’t be declining soon. A big drop in oil prices lent support to the major indexes.
With the stock market closed for Good Friday, traders had their first opportunity to react to Labor Department data that showed stronger-than-expected job growth in March. The numbers indicated that the economy might be in better shape than previously thought and helped offset continued worries about the housing market.
Takeover activity also provided a lift to the markets. Dow Chemical has reportedly been targeted by Middle Eastern investors and U.S. buyout firms, with a deal potentially worth $50 billion. It would be the biggest leveraged buyout on the books.
But upbeat news about the U.S. economy and corporate activity was interpreted by some on Wall Street as reasons for the Federal Reserve to hold off on cutting rates. And, with corporate earnings season to begin when Alcoa Inc. posts results today -- and the rate of profit growth expected to fall from previous quarters -- investors had reason to be cautious.
“All things point to the Fed, and now it looks like they are going to put rates on the back burner for a while after Friday’s numbers,” said Jay Suskind, head trader at Ryan Beck & Co. “And now the markets are looking toward earnings reports, where expectations have already been tempered.”
The Dow Jones industrials rose 8.94 points, or 0.07%, to 12,569.14.
Broader stock indicators were mixed. The Standard & Poor’s 500 index edged up 0.85 of a point, or 0.06%, to 1,444.61, and the Nasdaq composite index fell 2.16 points, or 0.09%, to 2,469.18.
The Russell 2,000 index of smaller companies fell 1.71 points, or 0.21%, to 811.64.
Monday’s modest moves left last week’s advance intact; the major indexes rose each day last week and returned to positive territory for the year. Most major European markets were closed Friday and Monday for an extended Easter holiday.
The Labor Department report showed nonfarm payrolls rose by 180,000 in March, above forecasts of 135,000. The unemployment rate fell to 4.4%, a five-month low.
Should the economy be stronger than some analysts had estimated, it could dissuade central bankers from lowering interest rates in the near term.
“The positive influence of the jobs report, along with more [merger] activity this morning, has been overshadowed by expectations that a rate cut is farther off in the distance,” said Michael Sheldon, chief market strategist at Spencer Clarke.
The report caused the bond market to fall sharply during a shortened trading day Friday. Bonds held steady from Friday’s sell-off, with the yield on the benchmark 10-year Treasury falling to 4.74% from 4.75%.
The dollar rose against other major currencies while gold prices slipped.
Oil futures continued their steep decline, with a barrel of crude skidding $2.77 to $61.51 on the New York Mercantile Exchange. Tensions in the Middle East eased after Iran released 15 British sailors and marines. There is also speculation among traders that an Energy Department report will show higher-than-expected U.S. inventories.
Investors looked to recent takeover activity as a sign that companies remained confident about the business climate.
In other market highlights:
* Dow Chemical surged $2.16, or 4.9%, to $46.63 after British tabloid the Sunday Express reported it could receive a buyout offer of $50 billion as soon as this week. Kohlberg Kravis Roberts, one of the biggest U.S. private equity firms, is said to be among the bidders.
* Burlington Northern Santa Fe rose $5.36, or 6.5%, to $88.08 after Berkshire Hathaway announced it had bought a 10.9% stake. Berkshire -- whose Class A shares rose $151 to $109,000 -- also confirmed it had made significant investments in two other railroads but did not disclose their names.
* Energy firm Mirant rose $3.44 to $44.08 after saying it may seek a buyer.
