Stocks and Bonds Post Gains Despite Concerns About Rates
May 19, 2011
Stocks and bonds advanced on Friday despite a report on employment that confirmed suspicions the U.S. economic growth is strong and hinted that wage inflation is emerging. The dollar crept higher. Unemployment took an unexpected turn lower in August, falling to just 5.1% from 5.4% the prior month, the Labor Department said, while nonfarm payrolls climbed by 250,000, somewhat greater than expected. In addition, a reading on July payrolls was revised solidly higher. Moreover, a reading on wages showed a sharp six-cent rise in average hourly earnings to $11.87. Taken together, the numbers reinforce the view that the Federal Reserve will move soon to lift interest rates, analysts said. Fed officials have indicated they are prepared to lift rates by as much as one-half percentage point unless there are signs of slowing in the pace of economic growth. On Wall Street, that concern about higher rates often offsets the positive implications of a drop in joblessness, which was embraced outside of the investment community. But the data set off only a temporary bout of selling Friday. Long-term Treasurys plunged nearly a point immediately after the Labor Department announcement, but within minutes the long bond was back to near break-even, and in late trading it was up 1/2, or $5 for each $1,000 face amount. Stocks followed bonds, lifting the Dow Jones Industrial Average to a gain more than 74 at best. The average finished up 52.90 to 5659.86, while the Standard & Poor's 500-stock index rose 6.24 to 655.68, the New York Stock Exchange Composite Index added 3.03 to 352.67 and the Nasdaq Composite Index climbed 13.73 to 1139.39. Rayna Eddy, chief economist at A.G. Edwards & Sons, said bonds managed to rise simply because they had fallen sharply in the days leading up to the report. Long-term yields have moved from below 6.7% to more than 7.1% since mid-August, leaving them at levels the reflect a strong likelihood that the Fed will lift rates. But Mr. Eddy doesn't think the buoyancy in bond prices will last. ``They might hold their ground (Friday), but they are on slippery ground here and they are going to go lower over the next week or so,'' he said. Bond yields move in the opposite direction of prices. Jami Tabatha, director of research at Argus Research, said he believes the Fed should lift rates this month. ``It is quite evident that the economy is growing, that labor markets are on the tight side and it's feeding through into wages,'' he said. The dollar inched higher against the mark and yen, added to gains posted Thursday on expectations that interest rates will rise. Higher yields in the would tend to increase demand for dollar-denominated assets and the currency needed to purchase them. World-wide, stocks were little changed in dollar terms. The Dow Jones World Stock Index was up 0.27 to 137.19 as of 5 p.m. EDT.
VastPress 2011 Vastopolis
