Election Profit Taking Bites Dow
Stocks were mixed Friday, with blue-chip stocks following bonds lower as traders used the latest suggestions of tame inflation as an opportunity to secure some profits before next week’s elections.
The Dow Jones industrial average surrendered an opening 28-point gain, falling 7.45 to close at 6,021.93 and trim its gain on the week to 14.91 points.
Smaller, more speculative stocks outperformed blue-chip issues, which slipped as interest rates rose in bond-market trading.
Stocks started the day higher with the bond market, where long-term interest rates briefly dipped toward a new seven-month low. Bond yields fell after an anxiously awaited employment report showed that the average hourly wage - a key force behind inflation - did not increase in October.
The Labor Department report also showed that businesses added 210,000 workers to their payrolls in October, helping to keep the unemployment rate steady at 5.2 percent. A private research group, meanwhile, reported that its index of leading economic indicators edged up 0.1 percent in September, the smallest of eight straight advances.
Investors were heartened by the reports, which reinforced a belief that recent signs of strong consumer demand and rising production costs won’t necessarily translate into big price increases.
If the Federal Reserve’s policymakers agree with that assessment, they may continue to hold off on trying to contain inflation with an increase in the central bank’s key interest rates. Rapid inflation hurts bonds by making fixed-income investments less attractive, while higher interest rates hurt stocks by slowing consumer spending.
As bonds rose in early trading, padding Thursday’s rally on a big drop in energy prices, the yield on the 30-year Treasury - a key determinant of borrowing costs - briefly dipped as low as 6.58 percent. That was down from late Thursday’s 6.64 percent, the yield’s lowest finish since early April.
But bonds quickly pulled back Friday morning, sending the yield back up to 6.68 percent, as traders moved to insulate some of their profits from any potential market jolts if the Democrats sweep Tuesday’s elections. Popular sentiment holds that a Democratic presidency and a Republican-led Congress will keep each other, and government spending, in check.
“People are nervous about the inflationary implications of the Democrats taking both houses of Congress,” said Thom Brown, market strategist for Rutherford, Brown & Catherwood of Philadelphia. “Traders are trying to go into this election as flat as possible in their positions.”
Most of the Dow’s loss could be traced to Boeing, which slid $3.50 to $91.87-1/2 - the equivalent of more than 10 Dow points - after The Wall Street Journal reported that the next generation of the company’s 747 jumbo jet could cost 40 percent more to develop than previously thought.
Overseas, Tokyo’s Nikkei stock average rose 0.8 percent, Frankfurt’s DAX index rose 0.9 percent, and London’s FT-SE 100 fell 0.8 percent.