Stocks post modest gain after a day of swings
Investors who have waited all year for a sign of a peak in unemployment weren’t quite sure how to react Friday when that signal arrived in the form of a much better-than-expected monthly report on jobs.
Stocks initially shot up at the prospect of consumers more willing to spend. But the rally quickly gave way to fears that the news was too good -- because it could lead the Federal Reserve to raise interest rates sooner than anticipated.
The day’s trading was an example of positive news for Main Street being viewed suspiciously on Wall Street. Stock investors worried that rising interest rates could cut into corporate earnings, lowering the market value of companies.
“There’s a plus and a minus to all of this,” said Peter Kenny, a trader at Knight Capital Group Inc. in Jersey City, N.J. “It’s clear the economy is stabilizing and we’re getting less bad numbers. But that means something is going to have to happen with rates, and we know they’re not going lower.”
The interest rate speculation sparked a powerful rally in the beaten-down dollar, which in turn prompted the steepest drop in the price of gold in more than a year.
Before the market opened, the Labor Department reported that payrolls shrank by only 11,000 jobs last month, far fewer than the 125,000 that economists had predicted and the smallest monthly drop since December 2007. The unemployment rate fell to 10% from 10.2%.
Although unemployment could very well resume climbing this month -- indeed, some analysts still expect job losses to persist for months -- the report reinforced the belief that the economy is on the mend.
Some analysts said Friday that the Fed might act to raise its benchmark short-term interest rate, now practically zero, as soon as the middle of next year. That possibility seemed more remote even 24 hours earlier.
The Dow Jones industrial average surged 150 points in the first 20 minutes of trading Friday, only to give all of it back in less than two hours. The index then swung in and out of positive territory before ending at 10,388.90, up a modest 22.75 points, or 0.2%.
The Standard & Poor’s 500 index rose 6.06 points, or 0.6%, to 1,105.98. The Nasdaq composite index gained 21.21 points, or 1%, to 2,194.35.
But the day varied sharply by sector. Economically sensitive stocks surged, with an index of financial stocks in the S&P 500 jumping 1.8% and shares of industrial companies rising 1.5%.
Shares of energy and raw-material producers, however, slumped along with commodity prices as the dollar staged its biggest rally since June.
Currency investors were betting that rising U.S. interest rates would make Treasury debt and other dollar-denominated securities more attractive. An index of the greenback against six other major currencies jumped 1.5%, its best performance since early June.
“It’s a very powerful move,” said Marc Chandler, head of currency strategy at Brown Bros. Harriman.
The dollar could even be starting a period of strengthening after sinking 17% from early March to late last month, Chandler said. But he didn’t want to say so too forcefully.
“Saying you’re bullish on the dollar is a little like being a Cubs fan,” he said.
Commodities, which are traded in dollars, suffered as the dollar strengthened.
After rallying powerfully throughout the fall, gold futures tumbled $48.60, or 4%, to $1,168.80, their sharpest decline in more than a year. Oil futures fell 99 cents to $75.47 a barrel.
Amid the speculation about Fed tightening, Treasury yields rose sharply. The 10-year T-note jumped to 3.48% from 3.38% late Thursday.
Trading in interest-rate futures Friday implied that the probability of a Fed rate increase by late June was 54%. That was up from 43% on Thursday and 31% at the end of last week.
