Stocks rebound amid optimism on inflation
The stock market rebounded sharply Friday from a steep fall the day before as equity investors viewed a report of milder inflation as a signal that the Federal Reserve might cut interest rates this year. The Dow Jones industrials rose more than 100 points and posted their sixth straight weekly gain.
Investors were encouraged after the Labor Department’s producer price index suggested inflation was moderating. That raised hopes on Wall Street that the central bank wouldn’t need to hike interest rates to keep the economy in check and might even lean toward lowering them.
“To some degree, the advance is in reaction to the sharp selling on Thursday,” said Richard Cripps, a strategist at Stifel Nicolaus. “The market was due for a blowoff, and I think the data you got this morning don’t get in the way of the positive trend underway. A fair amount of investors want to be in the market.”
The Dow jumped 111.09 points, or 0.8%, to 13,326.22, regaining most of the nearly 150 points it lost Thursday after reaching a record Wednesday.
Broader stock indicators also advanced. The Standard & Poor’s 500 index rose 14.38 points, or 1%, to 1,505.85, and the Nasdaq composite index climbed 28.48, or 1.1%, to 2,562.22. The Russell 2,000 index of smaller companies was up 10.91, or 1.33%, to 829.54.
Advancing issues led decliners by more than 3 to 1 on the New York Stock Exchange.
The Dow rose 0.5% for the week. The S&P; 500 was flat for the week, and the Nasdaq fell 0.4%.
Treasury yields rose Friday, suggesting bond investors didn’t believe that the producer price data significantly raised the possibility of a rate cut. The 10-year Treasury note’s yield rose to 4.67% from 4.64% late Thursday.
Crude oil futures rose 56 cents to $62.37 a barrel in New York.
The dollar was mixed against other major currencies, gaining against the yen and falling versus the euro. Gold prices rose.
The producer price index rose 0.7% in April, meeting Wall Street’s expectations. The core index, which excludes food and energy prices, was unchanged for the second month in a row.
“It looks like inflation is very tamed,” said Kim Caughey, an analyst at Fort Pitt Capital. She warned, however, that although the Fed looked primarily at core inflation, rising fuel costs could still pose a problem for stocks.
In other market highlights:
* Thousand Oaks-based Amgen fell for a second day after analysts downgraded its shares and forecast that regulatory actions could cause sales of its anemia drugs to drop by a fifth this year. The stock slid $1.03, or 1.8%, to $56.30, after diving 9.1% Thursday.
* Mortgage lender NovaStar Financial rose 53 cents, or 8.2%, to $7 after the company said the sub-prime market was recovering after bottoming in March.
* American International Group reported that first-quarter profit rose 29% but disclosed it would take a charge from its sub-prime loan exposure. The world’s largest insurer rose 38 cents to $72.58.
* Chicago Mercantile Exchange Holdings lifted its bid for rival commodity-market operator CBOT Holdings by 16%, hoping to head off an even higher counteroffer from IntercontinentalExchange Holdings. CBOT rose $7.35, or 3.8%, to $201.35. Chicago Mercantile gained $38.35, or 7.7%, to $536.30. IntercontinentalExchange rose $5.70, or 4.2%, to $140.55.
* Alcatel-Lucent posted a loss of $10.8 million for the first quarter, citing effects of the merger that formed the company. But shares of the telecom equipment maker rose 57 cents, or 4.4%, to $13.57 after it promised a strong second half.
* California Pizza Kitchen surged $2.54 to a record $36.80 after first-quarter earnings beat expectations.
* Wendy’s International gained 79 cents, or 2%, to $40.58. The fast-food chain’s biggest institutional shareholder urged it to sell itself in an auction. The company had said it was exploring strategic options.
* Overseas, key stock indexes rose 0.6% in Britain, 0.9% in Germany and 0.6% in France. In Japan, the Nikkei-225 fell 1%.