Shares leap on job reports
The stock market Wednesday erased a two-day losing streak as traders responded to economic news that was generally positive but not so upbeat as to significantly weaken expectations of a Federal Reserve interest rate cut next week. The Dow Jones industrial average gained nearly 200 points.
Wednesday’s advance, which resumed a solid recovery launched last week after a mostly dismal November, was driven by better-than-expected reports on job creation and labor productivity. The data eased concerns that the housing crisis could shove the economy into recession.
“The economic news has been pretty good,” said A.C. Moore, chief investment strategist at Dunvegan Associates Inc. in Santa Barbara. “It shows the economy is not laying down and is perhaps moving away from recession.”
The Labor Department reported that productivity soared at an annual rate of 6.3% last quarter, the fastest pace in four years. Improved productivity helps companies hold down labor costs while boosting living standards for workers.
A report from payroll company ADP Employer Services showed private-sector employment surged by 189,000 jobs in November, three times as many as forecast. Some experts viewed the ADP data as foreshadowing strength in the government’s closely watched employment report, to be released Friday.
“There might be a general malaise among homeowners these days, but as long as more people are getting paychecks, then the economy can withstand the stress,” said Jack Ablin, chief investment officer at Harris Private Bank.
The economic cheer was tempered by a private group’s report indicating that growth in the all-important services sector was slowing. The Institute for Supply Management said its service-sector index, based on a survey of corporate purchasing managers, dropped to 54.1 in November from 55.8 the previous month.
That was lower than the 54.8 economists had expected. A reading above 50 suggests the sector is expanding; below 50 indicates a contraction.
The Dow jumped 196.23 points, or 1.5%, to close at 13,444.96. The Standard & Poor’s 500 index climbed 22.22 points, or 1.5%, to 1,485.01.
The technology-dominated Nasdaq composite index led the advance, rising 46.53 points, or 1.8%, to 2,666.36, on analyst projections of increased demand for computers and software.
The Russell 2,000 index of smaller companies rose 13.58 points, or 1.8%, to 765.64.
Advancing issues led decliners by nearly 3 to 1 on the New York Stock Exchange.
Bond yields rose. The benchmark 10-year Treasury note climbed to 3.96% from 3.9% late Tuesday. The dollar gained, and gold retreated.
Oil prices declined to six-week lows after a mixed report on inventories failed to offset a belief that supplies were growing faster than demand. Crude futures fell 83 cents to $87.49 a barrel on the New York Mercantile Exchange.
Trading in interest-rate futures Wednesday indicated a slightly reduced probability of an aggressive, half-point reduction next week in the Fed’s key interest rate. But Greg Church, chief investment officer of Church Capital Management, said stock investors could be disappointed if the central bank, which meets Tuesday, doesn’t come through with a cut of half a percentage point.
“I do believe the market wants” a half-point, he said. A quarter-point “is not going to do it,” Church said.
Among financial stocks, which have been hard hit this year amid the sub-prime mortgage crisis, American International Group rose $2.70, or 4.9%, to $58.15. The insurer described its sub-prime exposure as manageable.
Fannie Mae shares rose 95 cents, or 2.7%, to $36.13 after it followed rival mortgage finance giant Freddie Mac in moving to cut its dividend and sell preferred stock to raise capital. The government-chartered lender hopes to cushion against mounting losses from high-risk home loans. Freddie Mac rose $2.36, or 7.3%, to $34.67.
Intel rose 91 cents, or 3.5%, to $27.22 after Thomas Weisel Partners upgraded the stock and forecast strong computer demand from emerging markets in 2008. Other chip makers also rallied. Micron Technology climbed 35 cents, or 4.1%, to $8.95, while Applied Materials jumped 64 cents, or 3.5%, to $18.73.
Oracle climbed $1.19, or 5.9%, to $21.22 after Lehman Bros. said demand for the world’s third-largest software company’s products would remain solid.
Among other tech stocks, Microsoft gained $1.38, or 4.2%, to $34.15, and IBM advanced $1.53, or 1.4%, to $108.16.
In other market highlights:
Comcast tumbled $2.55, or 13%, to $18.92 after the cable giant lowered its 2007 revenue forecast, citing the softening economy and increased competition.
Guess surged $2.30, or 5.3%, to $45.78. The Los Angeles-based apparel company’s third-quarter profit and sales topped Wall Street expectations.
Genentech sank $6.03, or 8.3%, to $66.75. A panel of government experts said the company’s cancer drug Avastin should not be approved for expanded use in breast cancer patients.
Stocks surged overseas, with key indexes climbing 2.8% in Britain, 1.7% in Germany, 2% in France, 0.8% in Japan and 1.6% in Hong Kong.
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Times wire services were used in compiling this report.
