Bulls back on top, for a day
Long-term Treasury bond yields pulled back from five-year highs and stock prices surged Wednesday as worries about inflation and the economy ebbed.
The 10-year T-note yield fell to 5.2% from 5.3% on Tuesday, and the Dow Jones industrial average rocketed 187.34 points, or 1.4%, to 13,482.35.
But many analysts cautioned that markets could face more upheaval today and Friday, with key reports due on May inflation.
For a day, at least, the bulls were back in control on Wall Street. Winners topped losers by more than 4 to 1 on the New York Stock Exchange.
The Standard & Poor’s 500 index gained 22.67 points, or 1.5%, to 1,515.67. The Nasdaq composite rallied 32.54 points, or 1.3%, to 2,582.31.
The Dow’s advance left it down just 1.4% below its record high reached June 4.
The Federal Reserve’s latest report on regional economic trends helped soothe the bond market. The Fed said the economy expanded from mid-April through May, but that “overall wage pressures do not seem to have increased” -- relieving some bond investors’ concerns about the outlook for inflation.
That offset a report showing a 0.9% surge in import prices in May, stoked by energy costs.
The bond market wasn’t disturbed by the government’s report that retail sales rose 1.4% in May, well above expectations. Excluding gasoline, retail sales were up 1.2%.
Stock investors took heart from the retail sales report because it reinforced the idea that consumers still are spending despite the housing market’s slump and high gasoline prices.
The data “are confidence builders” for investors, said Liam Dalton, who oversees $1.3 billion at Axiom Capital Management in New York. “It’s back to the idea of strong global growth and [moderate] inflation.”
But analysts said the bounce-back in bonds, in particular, also reflected technical trading factors. “It’s largely just a correction to a vastly oversold market,” said John Canavan, an analyst at Stone & McCarthy Research Associates in Princeton, N.J.
Yields in the Treasury market had surged over the previous seven sessions as traders and investors dumped bonds, fearing that better-than-expected economic growth had erased the possibility of a Fed cut in short-term interest rates. Many bond owners had been betting on a rate cut to justify holding bonds at recent yields.
Stocks began to tumble last week because rising interest rates could threaten the economy’s health. What’s more, higher rates would make it more expensive to finance corporate takeovers, which have bolstered stock prices this year.
Although Treasury yields dipped Wednesday, the yield on the average corporate junk bond rose to 7.51%, up from 7.49% on Tuesday and the highest since November, according to KDP Investment Advisors. Junk bonds often are used to finance company buyouts.
The bond market will be tested again today and Friday when the government releases reports on May trends in wholesale prices and consumer prices, respectively. High inflation readings could spark another round of selling by further reducing hopes for Fed rate cuts.
Among Wednesday’s market highlights:
* Energy-related stocks helped pace Wall Street’s rebound as near-term crude oil futures in New York rose 91 cents to $66.26 a barrel, following a government report showing that U.S. gasoline inventories rose less than expected last week.
Exxon Mobil rose $1.35 to $83.35, BP gained $1.41 to $68.36 and Schlumberger jumped $3.22 to a record $81.96
* Utility stocks recouped some of their recent losses triggered by rising bond yields. The shares, which appeal to many investors for their dividend yields, become less attractive amid greater competition from higher bond yields.
The Dow Jones utility stock index rose 2% to 498.13 after falling 8.9% from May 21 through Tuesday.
* Real estate investment trust shares, which also have been hurt by rising interest rates, got a lift on takeover speculation. AvalonBay Communities soared $8.07 to $128.96 on rumors that the third-largest U.S. real estate investment trust for apartments might get a bid.
* In the Dow-industrials index, Boeing rose $1.99 to $98.47 after raising its 20-year forecast for global jetliner deliveries by 5.2% because of increasing demand in Asia and Russia.
Another Dow stock, Caterpillar, jumped $1.85 to $79.93. The company raised its cash dividend payment 20%, to an annual rate of $1.44 a share, and reaffirmed its 2007 profit forecast.
* Freeport-McMoRan Copper & Gold, the biggest copper producer, climbed $2.78 to a record $81.75 after the company said it may sell assets to pay for debts incurred in its $26-billion acquisition of Phelps Dodge.
* Wall Street’s rebound helped lift the Brazilian stock market 2.3% and the Mexican market 0.9%. European markets were modestly higher.
