Stocks swing back up after two wild weeks
Ending a breathtaking two weeks that began with record highs followed by dizzying tumbles, the stock market rallied for a third straight day Friday, putting it almost back where it began and raising the question, “Are we back to normal?”
A government report Friday morning showing prices of consumer goods excluding food and energy rising only slightly in May calmed inflation fears as well as long-term bond yields. The data also soothed interest-rate-wary stock investors, as did the drop in long-term yields.
The Dow Jones industrial average jumped 85.76 points, or 0.6%, to 13,639.48. That put it less than 37 points from the record high of 13,676.32 set June 4.
“I think stocks might go on to new highs next week,” said Jim Paulsen, chief investment strategist of Wells Capital Management. “We’ve calmed down the short-term interest rate fears and what you’re left with is an economy that is growing very healthily in all sectors.”
The Standard & Poor’s 500 index rose 9.94 points, or 0.7%, to 1,532.91, less than 7 points from its record close June 4.
The Nasdaq composite index, still well below its record high set in 2000, surged 27.30 points, or 1.1%, to 2,626.71. The Russell 2,000 index of smaller firms rose 11.07 points, or 1.3%, to 848.19.
Bond yields fell. The yield on the benchmark 10-year Treasury bond slid to 5.16% from 5.22% on Thursday.
“There may be inflation problems ahead of us somewhere [but] it’s not now,” said Bill Buechler, president of La Jolla-based Barclay Partners Asset Management.
However, yields are much higher than they were six weeks ago, and some observers fear that will hurt consumer spending and stock market returns.
Higher yields are likely to raise monthly mortgage payments for millions of American homeowners, curtailing their spending power and likely causing further pain for those with risky sub-prime mortgages.
“Everybody’s rates virtually everywhere in the world are half a point higher now than they were four to six weeks ago,” said Charles Blood, director of strategy research at Brown Brothers Harriman. “That’s a big move, particularly since it carries most long-term rates to their highest levels in three or four years.”
Indeed, a preliminary estimate of consumer sentiment in June pointed to declining confidence. Investors, however, focused on the Labor Department’s inflation report for May.
Although the overall consumer price index jumped 0.7%, the more closely tracked “core” index, which excludes volatile food and energy prices, rose 0.1%. The core index is up 2.2% in the last year, the mildest 12-month rise since March 2006.
For the week, the Dow rose 1.6%, the S&P; 500 rose 1.7%, and the Nasdaq gained 2.1%. The S&P; 500 and the Nasdaq more than offset their losses of last week, while the Dow almost did.
The dollar was mixed against other major currencies Friday, while gold prices rose.
Oil prices gained. Crude futures climbed 35 cents to $68 a barrel in New York, their highest close there since September.
In other market highlights:
* As has been the case all year, stocks were buoyed by merger news. Shares of Penn National Gaming soared $10.98, or 21%, to $62.12 after the casino and racetrack operator agreed to be bought by two private equity firms for $67 a share.
Other casino stocks rallied on the news. Boyd Gaming jumped $1.35 to $51.25. Isle of Capri Casinos rose $2.45 to $25.09.
Nymex Holdings rose $2.32, or 1.7%, to a record high of $142.12 on reports that the operator of the New York Mercantile Exchange was exploring a sale. NYSE Euronext, Deutsche Boerse and Chicago Mercantile Exchange Holdings were said to be potential bidders.
* The rise in oil prices sent a gauge of energy companies in the S&P; 500 up 1.3% to its second consecutive record. Exxon Mobil climbed $1.17, or 1.4%, to a record of $85.94.
* Walt Disney rose 61 cents, or 1.8%, to $34.40. The stock was upgraded to “buy” from “neutral” by SMH Capital analyst David Miller, who said investors might be underestimating the company’s earnings potential.
* Intel climbed $1.01, or 4.4%, to $24.24 after Goldman Sachs upgraded the stock to “buy” from “neutral.”
* Nvidia rose $1.72, or 4.5%, to $39.55. The San Jose maker of computer graphics chips was rated a “strong buy” in an initial review by Raymond James, which called the company’s sales forecasts conservative.
* A New Jersey judge ruled that former manufacturers of lead paint won’t have to face health claims filed by a group cities and counties. Sherwin-Williams rose $1.52, or 2.3%, to $67.67. DuPont gained 97 cents, or 1.9%, to $51.47. Lyondell Chemical added 79 cents, or 2.1%, to a record $39.15.
* Stocks rallied overseas. Key indexes rose 0.7% in Japan, 1.2% in Britain, 2.3% in Germany and 1% in France.
Times wire services were used in compiling this report.
