Thursday, June 1, 2006

Stocks Climb as Rate Worries Ease

News Article
June 1, 2006

Business Week Online

Stocks Climb as Rate Worries Ease

Markets were assessing reports on productivity, manufacturing, retail sales, auto sales and home sales, ahead of Friday's key payrolls report

Stocks finished broadly higher Thursday, as investors cheered a lower wage inflation figure amid a flurry of economic data. Bargain-hunting likely helped boost stocks after the recent dowtrend, particularly as mutual funds often see fresh inflows at the start of a month, says Standard & Poor's Equity Research.

The Dow Jones industrial average rose 91.97 points, or 0.82%, to 11,260.28, led by AT&T (T ) and Alcoa (AA ), which each gained more than 3%. The broader Standard & Poor's 500 index climbed 15.62 points, or 1.23%, to 1,285.71. The tech-heavy Nasdaq composite rallied 40.99 points, or 1.88%, to 2,219.86.

The latest economic data helped ease inflation jitters, some analysts say. "The big chunk of the sell-off is over," says Gary Wolfer, senior portfolio manager at Univest Wealth Management & Trust. "I hate to use the word oversold, but the market as embodied by the S&P 500 seems to represent really good value."

A downward revision in first-quarter unit labor cost growth to 1.6% from 2.5% fanned hopes the Federal Reserve will pause from its interest-rate hikes when it meets June 28-29, says S&P Equity Research. In the same report, first-quarter nonfarm productivity growth was revised up to 3.7% from the advanced release of 3.2%, in line with expectations.

Separately, the Institute for Supply Management's index of manufacturing activity for May fell to 54.4 from 57.3 in April, below Street estimates. Meanwhile, pending home sales dropped 3.7% in April, a much weaker reading than expected. Construction spending unexpectedly fell 0.1% in April after rising 0.9% in March.

Employment data was coming into focus, as initial jobless claims surprisingly climbed 7,000 to 336,000 in the week ended May 27. On Friday, May nonfarm payrolls are expected to rise 165,000, says Action Economics. The report could yield further clues on the Fed's interest-rate plans.

Market players were also weighing solid retail sales reports Thursday. Federated Department Stores (FD ), J.C. Penney (JCP ) and Limited Brands (LTD ) were among retailers topping Wall Street same-store sales estimates. AnnTaylor (ANN ) and Bebe Stores (BEBE ) also beat forecasts.

On the downside, Wal-Mart (WMT ) posted a 2.3% increase in same-store sales, below analyst expectations. Gap (GPS ) and Sharper Image (SHRP ) also lagged.

Auto sales figures drew attention later in the session. General Motors (GM ) said sales fell 12.5% in May, in line with expectations. Ford (F ) said posted a 1.9% decline in May, better than Street forecasts, while DaimlerChrysler (DCX ) reported an unexpected 8% decline.

Elsewhere, Sun Microsystems (SUNW) was lower on news the network equipment maker will fire 4,000 to 5,000 workers in the next six months as part of a plan to end nearly five years of negative earnings.

Software maker Novell (NOVL ) was sharply lower after reporting lower second-quarter sales and said third-quarter revenue may fall short of estimates.

On the brokerage front, Domino's Pizza (DPZ ) was higher after JPMorgan Chase upgraded the stock from neutral to overweight.

In the energy markets Thursday, July West Texas Intermediate crude oil futures closed down 95 cents at $70.34, after weekly inventory data showed a modest, unexpected increase in crude supplies.

European markets finished higher. In London, the Financial Times-Stock Exchange 100 index rose 25.9 points, or 0.45%, to 5,749.7. Germany's DAX index advanced 14.73 points, or 0.26%, to 5,707.59. In Paris, the CAC 40 index added 17.11 points, or 0.35%, to 4,947.29.

Asian markets finished mixed. Japan's Nikkei 225 index bounced 36.41 points, or 0.24%, to 15,503.74. In Hong Kong, the Hang Seng index skidded 212.62 points, or 1.34%, to 15,645.27. Korea's Kospi index tumbled 22.61 points, or 1.72%, to 1,295.09.

Treasury Market

Prices for 10-year Treasury notes rose to 100-05/32 with a yield of 5.11%, while 30-year bonds climbed to 89-14/32 for a yield of 5.2%.

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