News Article
BusinessWeek.com
September 15, 2006
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Stocks Rise after Mild Inflation Data

The Dow pulled within 170 points of its all-time high after CPI data met expectations. Also in focus: DaimlerChrysler, Ford

Stocks finished higher Friday, though off session peaks, following economic reports showing a firm economy and modest inflation. Investors were looking ahead to next week's Federal Reserve meeting, says Standard & Poor's Equity Research.

The Dow Jones industrial average rose 33.38 points, or 0.29%, to 11,560.77, an increase of 1.4% for the week. The broader Standard & Poor's 500 index added 3.59 points, or 0.27%, to 1,319.87, a weekly advance of 1.6%. The tech-heavy Nasdaq composite gained 6.86 points, or 0.31%, to 2,235.59, climbing 3.2% on the week.

NYSE breadth was positive, with 20 issues advancing for every 14 declining. Nasdaq breadth was 15-14 positive.

Inflation numbers were in focus Friday. The consumer price index (CPI) rose 0.2% in August, accompanied by a 0.2% increase in the core CPI, which excludes food and energy. On a year-over-year basis, the core CPI accelerated to a 2.8% rate, the fastest pace in about five years.

The CPI report was in line with expectations, says Action Economics. "Though the lack of an upside surprise on the core is a relief to the markets, the Fed isn't out of the woods yet," the economic research outfit says.

Meanwhile, the Empire State index of regional manufacturing activity improved to 13.84 in September, after falling five points to an upwardly revised 11.04 in August. The University of Michigan's consumer sentiment index rose to 84.4 in the preliminary September data, from a final August reading of 82.0. Industrial production fell 0.1% in August, following a 0.4% increase in July.

Looking ahead, the Fed's interest-rate meeting is set for Wednesday. Policymakers are expected to hold the federal funds rate steady at 5.25%. "Signs of economic moderation have intensified since the last meeting," says Bank of America economist Mickey Levy.

Monday's docket holds second-quarter current account data and the National Association of Home Builders' housing index. Other data releases due next week include housing starts, the producer price index, jobless claims, leading economic indicators, and the Philadelphia Fed survey.

In corporate news Friday, DaimlerChrysler (DCX ) was lower after the automaker slashed its full-year operating profit forecast by $1.27 billion.

Automaker Ford (F) was sharply lower as the company announced an expanded restructuring plan that aims to slash the company's ongoing annual operating costs by about $5 billion.

On the M&A front, media conglomerate News Corp. (NWS ) was reportedly considering swapping its controlling stake in DirecTV Group (DTV ) to Liberty Media (LCAPA ) in a deal for Liberty's stake in News Corp.

Utility group Excelon (EXC ) was higher after abandoning its $17.8 billion purchase of Public Service Enterprise Group (PEG ), blaming an impasse with state regulators.

Shares of Bristol-Myers Squibb (BMY ) gained on a report fellow drugmaker Schering-Plough (SGP ) was considering approaching Bristol-Myers about a possible merger.

In earnings news, Adobe Systems (ADBE ) was sharply higher after the software maker reported a 35% drop in third-quarter profit on a 24% rise in revenue.

In the energy markets, October West Texas Intermediate crude oil futures closed up 11 cents at $63.33 a barrel. OPEC lowered its oil-demand forecast for the rest of the year.

European markets finished mostly higher. In London, the Financial Times-Stock Exchange 100 index edged down 0.2 points, or less than 0.01%, to 5,877. Germany's DAX index added 30.5 points, or 0.52%, to 5,937.87. In Paris, the CAC 40 index was up 21.03 points, or 0.41%, to 5,144.88.

Asian markets ended mixed. Japan's Nikkei 225 index lost 75.46 points, or 0.47%, to 15,866.93. In Hong Kong, the Hang Seng index advanced 54.2 points, or 0.32%, to 17,237.65. Korea's Kospi index gained 2.35 points, or 0.17%, to 1,361.1.

Treasury Market

Treasury yields drifted higher as Kansas City Fed President Thomas Hoenig's remarks on the lack of recession risk countered the relatively tame core CPI reading. The 10-year note edged up in price to 100-22/32 for a yield of 4.79%, while the 30-year bond rose modestly to 93-20/32 for a yield of 4.91%.