Inflation Fears Fall, So Dow Rises
The inflation pendulum swung back from the dark side Friday, helping stocks recapture a chunk of Thursday’s heavy losses.
The Dow Jones industrial average, which tumbled 160 points on Thursday in its fifth-biggest point drop ever, rose 56.57 to 6,935.46, trimming the week’s decline to 65.43.
Most broader measures also repaired some of the previous session’s damage, but the Nasdaq composite index turned negative over the last hour as investors pulled more profits from the technology sector.
In stark contrast to Thursday’s robust economic readings - which convinced many the Federal Reserve would soon raise interest rates to keep inflation tame - the Labor Department reported Friday morning that wholesale prices paid to farms and factories fell by 0.4 percent last month.
The unexpected decline in producer prices restored confidence that the economy’s continued vigor needn’t translate into accelerating inflation. On Thursday, stocks tumbled as interest rates shot higher in the bond market amid news of surprisingly heavy retail activity during January and February. Economists have been concerned that strong consumer demand will aggravate inflationary pressures such as rising production costs.
If Fed officials decide to raise the central bank’s key lending rates at their March 25 meeting, “it wouldn’t be that much of a surprise. But the stock market is definitely breathing a lot easier,” said Charles G. Crane, director of research at Spears, Benzak, Salomon & Farrell.
As bonds rebounded Friday morning, the yield on the 30-year Treasury bond - a key determinant of corporate and consumer borrowing costs - fell as low as 6.91 percent before settling at about 6.94 percent. On Thursday, the yield jumped as high as 6.98 percent, threatening to touch 7 percent for the first time in nearly six months. The prospect of rapid inflation makes a fixed-income investment such as bonds less attractive, forcing down prices to improve their yield.
Advancing issues outnumbered decliners by a 4-to-3 margin on the New York Stock Exchange, where volume totaled 486.93 million shares as of 4 p.m., down slightly from Thursday’s pace.
The Standard & Poor’s 500-stock list rose 3.61 to 793.17, the NYSE’s composite index rose 1.83 to 417.70, and the American Stock Exchange composite index rose 2.45 to 600.47.
But the Nasdaq composite index dipped 0.29 to 1,292.99, surrendering an early advance. The drop came despite a $4.87-1/2 jump to $41 by software maker Oracle, which posted solid earnings after Thursday’s close. Offsetting Oracle’s gain were late pullbacks by Intel, down $3.37-1/2 to $137.87-1/2, and Dell Computer, down $2.12-1/2 to $70.12-1/2.
“A lot of damage was done yesterday,” said Alfred E. Goldman, vice president at A.G. Edwards & Sons Inc. in St. Louis. “When you hold a sale, people come to buy.”
Tokyo’s Nikkei stock average rose 0.1 percent, Frankfurt’s DAX index rose 0.3 percent and London’s FTSE 100 rose 0.6 percent.