NEW YORK Jan. 6 -- U.S. stocks closed higher on the session and week
Friday, with the Dow Jones Industrial Average reaching its highest close in
four and a half years, after a weaker than expected December jobs report
raised hopes that the Federal Reserve may end its cycle of interest-rate hikes
sooner rather than later.
Equities began their weeklong rally on Tuesday, when new Federal Open
Market Committee meeting minutes hinted at a timely halt to rate hikes.
The Dow industrials closed 77.16 points higher at 10,959.31, its best
level since mid-2001. The benchmark index registered a weekly gain of around
2.2%.
The Nasdaq Composite Index climbed 28.75 points, or almost 1.3%, to
2,305.62, allowing the tech-rich index to set yet another fresh multiyear
high. During the first trading week of 2006, the Nasdaq has risen 4.5%.
The S&P 500 Index increased 11.97 points, or nearly 1%, to 1,285.45,
giving it a weekly gain of about 3%.
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 federal 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.
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
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 closed 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
three to one on the New York Stock Exchange, and by about two to one 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
prices.
Volume was 1.77 billion on the Big Board, and 2.27 billion on the Nasdaq.
Dollar, gold, oil
The dollar weakened against the euro and the Japanese yen, as the data
fueled expectations that the Fed's cycle of interest-rate hikes would come to
an end sooner rather than later.
At last check, the euro was up 0.6% at 1.2152 against the dollar. The
greenback tumbled 1.7% to 114.39 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 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.
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 oil fields.
Blue chips in focus
IBM shares surged almost 3% to finish at $84.95 after the company said it
would freeze its U.S. pension plan in 2008.
Elsewhere on the Dow, Wal-Mart Stores Inc. rose 19 cents to $45.88, as the
repercussions over its disappointing fourth-quarter profit outlook continued
to reverberate.
Exxon Mobil Corp. jumped $1.15 to $59.43 on the rise in crude.
Other standouts
In the Internet space, Yahoo Inc. rose 3.9% to $43.16 after Goldman Sachs
raised its earnings estimates due to expectations of higher search and branded
revenue growth.
Separately, Yahoo 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, Motorola Inc. and Nokia Corp. 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.
In addition, a Caris & Co analyst said it is possible Google could achieve
a long-term implied value of $2,000, but stressed that the figure is not an
official target.
Google shares closed up $14.04 at $465.26.
Elsewhere, shares in Starbucks Corp. fell 6 cents to close at $31.53 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," Bear
Stearns wrote in a note to clients.
Mark Cotton is a reporter for MarketWatch in New York.
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SOURCE Thomson Financial Corporate Group
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