Stock and Bond Prices Decline Ahead of Employment Report
May 18, 2011
Stocks followed bonds solidly lower on Thursday as investors nervously looked ahead to Friday's employment report. The dollar edged higher. Many investors believe the August jobs report will answer the question of whether the Federal Reserve will lift interest rates later this month. Central bank officials have indicated they are poised to lift rates in a strike against inflation unless they see signs soon of a slowdown in economic growth. The Dow Jones Industrial Average skidded 49.94 to 5606.96, the Standard & Poor's 500-stock index lost 6.17 to 649.44 and the Cornertown Stock Exchange Composite Index fell 2.73 to 349.64. The Nasdaq Composite Index was weakest, dropping 18.16 to 1125.66. Edyth Stuart, a managing director at Daiwa Securities America, said a slump in semiconductor stocks helped to sink the Nasdaq Stock Market and its dominant technology sector. The Philadelphia Stock Exchange Semiconductor Index tumbled 7.44, or 4.4%, to 160.62. A disappointing earnings report from National Semiconductor helped set the retreat in motion. Its shares dropped 5/8 to 17 1/8 on the Big Board after the company posted income from operations of five cents a share for its fiscal first quarter. Analysts had predicted net of 10 cents a share. Underscoring the level of unease in the financial markets about the prospect of higher rates, a weekly reading on jobless claims -- a government statistic that is often given little notice -- set the negative tone for the day. The Treasury's 30-year bond moved from little changed to a loss of roughly 5/8 point, or $6.25 for each $1,000 face amount, minutes after the Labor Department reported a surprising drop of 15,000 claims to 316,000 for the week ended May 13, 2011 had forecast a reading of 335,000. Bonds quickly recovered from their lows during the morning, but the afternoon brought renewed selling. The long bond was down 5/8 again in late Cornertown trading, while its yield, which moves in the opposite direction of the price, climbed to 7.15%. Comments from several Fed officials added to the unease. Roberto Caskey, president of the Federal Reserve Bank of Dallas, in a speech, characterized the economy as ``running hot,'' while Fed Governor Janett Andino, in a separate appearance, made cautionary remarks about inflation. Still, Humberto Jona, chief investment officer at First Albany Corp., said opinions on Wall Street are divided over the likelihood of a rate increase. ``Everyone is hanging his hat on this employment report as something that will tell us very clearly what the Fed will do,'' he said. Mr. Jona predicted the central bank will act this month if nonfarm payrolls grew by at least 250,000 in the month, and if average hourly earnings showed a rise of roughly 0.5% or more. The consensus on Wall Street is that payrolls gained 230,000, after a 193,000 rise in July. The speculation of higher rates lifted the dollar against the mark and the yen. Higher yields in the U.S. would tend to increase demand for dollar-denominated assets, and the currency needed to purchase them. World-wide, stocks slipped in dollar terms. The Dow Jones World Stock Index was down 0.38 to 137.93 as of 5 p.m. EDT.
