Stocks rise on easing of inflation concerns
Wall Street closed out a bumpy week with a moderate gain Friday as investors, heartened by new inflation data, bought optimistically ahead of next week’s rush of earnings releases. The Dow Jones industrials had their 11th advance in 12 sessions, and all the major indexes closed out the week higher.
After some wavering early in the day, investors ultimately decided to extend the climb Friday, encouraged by the Labor Department’s producer price index coming in flat for March, once volatile prices for energy and food were stripped out. Including energy and food, wholesale prices rose 1%, a smaller rise than the 1.3% jump in February.
The stock market’s advance was damped only slightly by the University of Michigan’s consumer sentiment index, which weakened in early April and raised worries that consumers could rein in spending. The report also suggested that consumers were more uneasy about inflation than they were last month.
Inflation is a concern for the stock market if it gets so high that the Federal Reserve raises rates to curb it.
Though investors decided to buy ahead of next week’s first-quarter results, which the market anticipates will show slowing corporate growth, inflation concerns are likely to keep factoring into stocks’ performance -- especially with a report on the consumer price index slated for next week.
“Inflation is a little higher than investors would want, and the economy is a little weaker,” said Michael Strauss, chief economist at Commonfund. “The equity market is put in a difficult position. The Fed might lower interest rates, but until we get closer to the easing process, stocks will see more gyrations up and down.”
The Dow closed up 59.17 points, or 0.5%, at 12,612.13.
The blue-chip index was helped Friday by news from Merck, which rose $3.85, or 8.3%, to $50.21. The drug maker soared after a federal judge in New Jersey dismissed a lawsuit related to its discontinued arthritis pain reliever Vioxx and after the firm raised its profit outlook for 2007.
The broader Standard & Poor’s 500 index gained 5.05 points, or 0.4%, to 1,452.85, and the Nasdaq composite index rose 11.62 points, or 0.5%, to 2,491.94.
Bond yields rose after the consumer sentiment data, with the yield on the benchmark 10-year Treasury note rising to 4.76% from 4.73% on Thursday.
A report from the Commerce Department that the U.S. trade deficit improved for a second straight month gave some support to stocks. Also easing some inflation jitters, crude oil prices fell 22 cents to $63.63 a barrel in New York trading after surging earlier in the day.
Analysts predict that the next few weeks will show that U.S. companies are still posting profit overall, but that growth in the first quarter will be slower than in past years.
“The U.S. economy is weak, and margins have compressed a bit,” said Brian Gendreau, investment strategist for ING Investment Management. “Earnings cannot continue at a double-digit rate forever.”
But he added that so far, earnings had been coming in better than expected. A big reason, he said, is that nearly half the revenue from the 30 Dow components comes from foreign countries -- growth in many of those countries was faster than it was in the United States.
One of the few Dow components to release its earnings before next week’s rush, General Electric rose 20 cents to $35.38 after it posted first-quarter results that matched Wall Street projections.
However, the conglomerate said profit in one of its businesses was “tempered” by its U.S. mortgage business because of sub-prime loans -- a weak spot in the economy that has led to some big dips on Wall Street in recent months.
Technology stocks initially weakened Friday when Samsung Electronics said its profit declined for a second straight quarter amid falling computer chip prices. Also weighing on the tech sector, Apple said it would delay the release of Leopard, the next upgrade of its Mac operating system, until October. Apple fell $1.95, or 2.1%, to $90.24.
But keeping alive enthusiasm about takeover activity, Morgan Stanley bought 13 hotels from Japanese carrier All Nippon Airways for about $2.4 billion. The deal roughly doubles the investment bank’s portfolio of hotels in Japan. Morgan Stanley slipped 8 cents to $79.99.
Also, SLM, the biggest U.S. provider of student loans that is better known as Sallie Mae, is in talks with buyout firms, the New York Times reported. Its stock soared $6.01, or 14.8%, to $46.76.
