Stocks extend rally as inflation stays flat

Wall Street extended its advance Friday after reports showed inflation remained tame in November and industrial production rose for the first time in two months amid increased output by automobile makers. The Dow Jones industrial average posted its second straight record close, and the major indexes closed the week with substantial gains.

The data underscored a sense in the market that the economy is slowing at a reasonable pace and that inflation, a key concern of the Federal Reserve, is in check. High inflationary readings would likely make the Fed hesitant to lower short-term interest rates; the Fed kept rates steady at its meeting on Tuesday.

“You have a fairly benign interest rate environment which has eased the pain that oil inflicted back in the summer,” said John O’Donoghue, co-head of equities at Cowen & Co. He contends the emerging economic picture and merger deals have left investors feeling emboldened and will likely help send stocks higher as the end of the year nears.

The Dow rose 28.76, or 0.23 percent, to 12,445.52. The Dow eclipsed its record close of 12,416.76 set Thursday, its first in nearly a month, and set a new trading high Friday of 12,486.30. Eleven of the 30 stocks that comprise the blue chip index reached fresh 52-week highs Friday.

Broader stock indicators also moved higher. The Standard & Poor’s 500 index closed at a new six-year high, rising 1.60, or 0.11 percent, to 1,427.09. The Nasdaq composite index was up 3.35, or 0.14 percent, at 2,457.20.

Friday’s gains were somewhat tepid, however, as declining issues outnumbered advancers 6 to 5 on the New York Stock Exchange. For the week, which saw stocks rally on renewed confidence in the economy, the Dow rose 1.12 percent, the S&P advanced 1.22 percent and the Nasdaq rose 0.81 percent.

Bonds were little changed, with the yield on the benchmark 10-year Treasury note flat at 4.60 percent from late Thursday. The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude rose 92 cents to $63.43 a barrel on the New York Mercantile Exchange.

The Labor Department said consumer prices were flat in November rather than up 0.2 percent as analyst had expected. Core inflation, which excludes volatile food and energy costs, was also unchanged. Lower energy prices have helped the consumer price index for the last three months. The Fed also reported a 0.2 increase in industrial production last month, the first increase in two months.

O’Donoghue said the latest economic figures only add to confidence built upon during the fourth quarter from a spate of private equity and merger deals. “You’re talking about very professional people that put valuations on things. They don’t buy things that they deem to be expensive,” he said, referring to the acquisitions.

“I think there is an enormous amount of cash in the whole system,” he said, predicting the run-up in stocks will continue through the end of the year before Wall Street will re-evaluate conditions in the markets early next year.

The Russell 2000 index of smaller companies was down 1.51, or 0.19 percent, at 792.71.

Volume on the NYSE came to 2.11 billion shares compared with 1.57 billion traded Thursday. Friday was a “triple-witching” day, one of the four days of the year when three types of options contracts expire. Such days usually bring higher-than-normal volume as investors jockey for new positions.

Overseas, Japan’s Nikkei stock average closed up 0.51 percent. Britain’s FTSE 100 closed up 0.51 percent, Germany’s DAX index ended up 0.55 percent, and France’s CAC-40 rose 0.58 percent.