Stocks Rise As Interest Rates Fall
Technology shares stumbled again, but most stocks rose Friday amid news that wages, a key force behind inflation, didn’t rise at an inflationary pace last month.
The Dow Jones industrial average rose 56.19 to 7,000.89, giving the blue-chip barometer a gain of 123.15, or 1.8 percent, on the week. The Dow plunged below 7,000 on Feb. 26, after Federal Reserve Chairman Alan Greenspan warned against the inflationary risks of “excessive optimism” in the financial markets. Since then, Greenspan has tempered his remarks.
Broader measures were mostly positive Friday, but the technology-laden Nasdaq market turned lower near the close as leading computer-industry shares surrendered most of their early gains.
Interest rates deviated sharply in bond trading, initially soaring as Treasury prices tumbled immediately following a government report on February employment. But bonds recovered within minutes, sending interest rates lower and setting the stage for a broad stock advance.
Investors were initially troubled by the news that U.S. unemployment rate dipped to 5.3 percent in February, aggravating worries that wages - a key component of a product’s price - might rise as companies compete for shrinking supply of workers.
The Labor Department reported that the economy created 339,000 new jobs last month, the largest increase in nine months and at least 100,000 more than many economists had projected.
But the report also said that average hourly earnings for private production workers rose just 3 cents to $12.09. That helped ease fears Federal Reserve officials are planning to raise the central bank’s interest rates as insurance against inflation, potentially stifling economic growth and company profits.
“Although we’re seeing ongoing tightness in the labor markets, which was dramatized by the decline in the unemployment rate, we are not yet seeing upward pressure on wages,” said Hugh Johnson, chief investment officer at First Albany Corp.
As bond prices fell Friday morning, the yield on the 30-year Treasury bond - a key determinant of corporate and consumer borrowing costs - jumped as high as 6.94 percent from late Thursday’s 6.88 percent. But after the Treasury market rebounded, the long-bond yield fell as low as 6.80 percent before settling at about 6.81 percent.
Higher inflation makes fixed-income investments like bonds less attractive, forcing down prices to improve their yield. Higher interest rates at the Fed or the bond market hurt stocks by slowing consumer borrowing and spending.
Advancing issues outnumbered decliners by nearly a 2-to-1 margin on the New York Stock Exchange, where volume totaled 505.79 million shares as of 4 p.m., down slightly from Thursday’s pace.
The Standard & Poor’s 500-stock list rose 6.41 to 804.97; the NYSE’s composite index rose 3.59 to 423.83; and the American Stock Exchange composite index rose 1.75 to 602.06.