By Mark Cotton, MarketWatch
Jan 6, 2006
U.S. stocks rallied late in Friday's session, with the Dow Jones
Industrial Average heading for a 4 1/2-year high, after a
weaker-than-expected December jobs report raised hopes the Federal Reserve
may end its cycle of interest-rate hikes sooner rather than later.
The Dow industrials was last up 81 points at 10,963. The benchmark index
is on track to post a weekly gain of around 2%. If the Dow ends above
10,948, it will join the Nasdaq and the S&P 500 at 4 1/2-year highs.
The Nasdaq Composite Index climbed almost 29 points to 2,305, putting the
tech-rich index at a fresh 4 1/2-year high, and on course for a weekly
gain of 4.1%.
The S&P 500 Index was up almost 12 points at 1,285. For the week, the
broad gauge is set to post a gain of about 2.6%.
The positive tone of the market was set ahead of the open with a jobs
report that eased interest-rate concerns.
U.S. job growth slowed in December to 108,000 new jobs, even as the
unemployment rate fell to a cyclical low of 4.9%, the Labor Department
reported. Economists polled by MarketWatch had been looking for a gain of
205,000 and a jobless rate of 5%.
However, helping offset the shortfall in December, net job growth in
November was revised higher to 305,000 from 215,000.
"People are putting cash to work because there is a sense we can have an
economy growing at a decent pace without interest rates rising much
further, and without a lot of inflation, save for energy as the only
headwind," said Jay Suskind, director of trading at Ryan, Beck & Co.
The Federal Reserve last raised its key short-term interest rate in
December. The Fed Funds rate now stands at 4.25%. The central bank's
interest-rate setting body meets again at the end of the month, when it is
widely expected to raise rates by another quarter percentage point.
However, the rally in stocks began on Tuesday with the release of the
minutes of the Federal Open Market Committee's December meeting, showing a
majority of members believe only a few more rate hikes are needed to keep
inflation in check.
For Owen Fitzpatrick, head of U.S. equity group at Deutsche Group, a
stronger jobs report might have jeopardized that rally.
"It's a relief that the employment market is not overheating as the Fed,
if you look back over the years, has been very sensitive to any type of
inflation coming out of wages."
Bonds take a different tack on jobs data
The bond market took a slightly different read on the jobs report.
Long-term Treasurys traded lower, sending yields higher as fixed-income
traders focused on the higher-than-expected gain in hourly wages and the
upward revision to November jobs growth, making it overall, a solid jobs
report.
As a result, fixed-income traders were less optimistic than their
counterparts in the stock market that the weaker-than-expected December
payrolls number could hasten an end to the current cycle of interest-rate
increases.
The 10-year benchmark note was last down 5/32 at 100 31/32, with its yield
at 4.377%, up from 4.35% on Thursday.
On the broader market for equities, advancers outpaced decliners by nearly
3 to 1 on the New York Stock Exchange, and by about 2 to 1 on the Nasdaq.
By sector, technology was strong with Internet, computer hardware,
semiconductors and software stocks all rallying.
Energy and oil services stocks also gained, helped by a rise in crude-oil
prices.
On the downside, airlines struggled. Housing stocks were also lower.
Volume was 1.26 billion on the Big Board, and 1.68 billion on the Nasdaq.
Dollar, gold, oil
The dollar weakened against the euro and the Japanese yen, as the data
fueled expectations the Fed's cycle of interest-rate hikes would come to
an end sooner rather than later.
At last check, the euro was up 0.3% at 1.2152 against the dollar. The
greenback tumbled 1.4% to 114.36 yen.
Gold futures resumed their upward path after snapping an eight-session
winning streak. The weakness in the dollar was driving investors to the
precious metal as a hedge against potential losses.
Gold for February delivery ended up $13.40 at $541.20 an ounce. On the
week, gold rallied 4.3%.
Crude futures climbed to a near three-month high, putting them on track
for a weekly gain of around 4%.
Tensions in the Middle East sparked the current spike, said Matthew Parry,
an economist at Moody's Economy.com, pointing to leadership questions in
Israel, turmoil in Iraq and reports that Venezuela was forcibly
renationalizing 32 privately-operated oilfields.
Crude for February delivery rose more than 5% to close at $64.21 a barrel,
marking a three-month high. Natural gas gained 1.4% on the day, but lost
14% on the week.
Dow stocks in focus
IBM shares surged 2.5% to $84.58 after the company said it would freeze
its U.S. pension plan in 2008.
Shares in Microsoft Corp. slipped 28 cents to $26.71 after Credit Suisse
First Boston downgraded the computer software giant to neutral from
outperform, saying the stock is unlikely to outperform its peers in 2006.
Wal-Mart Stores Inc. was lower for a second straight session, down 0.5% at
$45.49, as the repercussions over its disappointing fourth-quarter profit
outlook continued to reverberate.
Exxon Mobil Corp. jumped $1.06 to $59.34 on the rise in crude.
Other stock standouts
In the Internet space, Yahoo Inc. shares rose 4.2% to $43.27 after Goldman
Sachs raised its earnings estimates due to expectations of higher search
and branded revenue growth.
Separately, Yahoo Inc. unveiled a suite of services for mobile phones, TV
and desktop applications. Yahoo Go, as the product offering will be known,
will allow consumers direct access to Yahoo content. The company will be
working with AT&T, Cingular Wireless, Nokia Corp and Motorola to launch
the service.
Goldman also became the latest brokerage to issue a positive note on
Google Inc. It raised its price target on the Internet search company to
$500 from $400 to reflect higher earnings expectations. Earlier in the
week, Piper Jaffray lifted its price target on the company, while Bear
Stearns upgraded the company. Google shares were up $16 at $467.68.
Elsewhere, shares in Starbucks Corp. fell 15 cents to $31.46 even as the
coffee chain reported a 7% rise in December sales from stores open at
least a year, known as same-store sales. The sales figure was at the upper
end of the coffee chain's targeted range.
"This may be viewed as disappointing by the market given increased
expectations over the past week, but overall it is a solid number," said
Bear Stearns in a note to clients.
This MarketWatch news update is provided to you courtesy of Thomson
Financial.
This is Thomson Financial's Market Commentary, which is issued three times
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p.m.). The information herein is believed to be true and accurate. We
take no responsibility for inaccurate information and reserve the right to
update our reports. If you have any questions please e-mail James Sang at
james.sang@tfn.com or call 646.822.6233. For more information about
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SOURCE Thomson Financial Corporate Group
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