Stocks Surge, Bonds Fall on Jobs Report
Friday October 5, 12:24 pm ET
By Tim Paradis, AP Business Writer Stocks Jump Sharply After Labor
Department Reports Strong September Job Growth NEW YORK (AP) -- Stocks
jumped sharply and bond prices tumbled Friday after the government reported
strong September job growth and revised August's weak data upward. The Dow
Jones industrials at times rose more than 100 points and the Standard & Poor's
500 index broke into record territory. The Labor Department's report
that employers added 110,000 jobs in September -- near the 115,000 increase
analysts had expected -- reassured Wall Street that the job market wasn't
pulling back sharply. The data appeared to lessen the likelihood of an interest
rate cut when the Federal Reserve meets Oct. 30-31, but investors were
nonetheless consoled by the fact that the economy isn't in trouble. Strength
this year in the job market amid a housing downturn and tighter credit
conditions has been an important pillar for the economy. Crucially, August
payrolls were changed to a gain of 89,000 versus the previous estimate of a
4,000 decline. The unemployment rate rose to 4.7 percent from 4.6 percent in
August as hundreds of thousands of people came back into the labor market,
looking for work. "We're not seeing a weakening of the labor market. There's
no indication that the wheels are falling off," said T.J. Marta, economic
strategist at RBC Capital Markets. He contends that while the jobs number makes
it less likely the Fed will cut rates at the end of the month, many on Wall
Street were relieved that a widespread weakening of the economy appears less
likely. "It looks bad compared with the rip-roaring days in the housing
sector but this is called normalcy." In midday trading, the Dow rose 94.62,
or 0.68 percent, to 14,068.93. Broader stock indicators also jumped. The S&P
500 index rose 12.25, or 0.79 percent, to 1,555.09. The advance put the S&P 500
ahead of its previous record close of 1,553.08, which occurred
July 19 before stocks began a broad retrenchment amid concerns about credit,
housing and the overall economy. The index also moved above its July 16 trading
high of 1,555.90. The technology-dominated Nasdaq composite index showed
bigger gains, rising 39.90, or 1.46 percent, to 2,773.47. Likewise, the
Russell 2000 index of smaller companies rose 13.77, or 1.66 percent, to 842.92.
Bond prices fell sharply as investors interpreted the jobs data as evidence
against a rate cut. The yield on the 10-year Treasury note, which moves
opposite its price, climbed to 4.66 percent from 4.53 percent late Thursday.
While employment appeared to be holding up, Wall Street was also forced to
examine the ramifications of credit market tightness and a slumping housing
market on the banking sector. Merrill Lynch & Co. warned of a loss in the third
quarter, and Washington Mutual Inc. forecast sharply lower profit due to
problems stemming from turmoil in the mortgage market. The warnings
follow similarly weak forecasts from Citigroup Inc. and UBS AG earlier this
week. Merrill rose $1.96 to $76.69, while Washington Mutual rose 45 cents to
$35.73. Many investors expect the financial institutions to return to more
normal results in the current quarter. The initially weak data in August was
seen as one motivating factor in the Federal Reserve's decision to slash rates
by a larger-than-expected half-percentage point last month. Lower interest
rates pulled the dollar down sharply in recent weeks. The employment reading
Friday stirred debate over the Fed's next move but didn't rule out a rate cut.
As such, the dollar gave up its earlier advance against other major currencies,
leaving the greenback mixed. Meanwhile, gold prices rose and light, sweet
crude fell 79 cents to $80.65 per barrel on the New York Mercantile Exchange.
Fed funds futures are pricing in one rate cut of a quarter percentage point by
the end of the year -- signaling the Fed would likely
act at either its October or December meetings. "There is not enough
ammunition for another ease in October," Marta said, pointing to decent
economic readings seen in recent weeks. "Maybe the Fed really had it right
because they talked about forestalling economic fallout from the financial
crisis," he said of the reasoning behind last month's cut. "What we're seeing
is the economic data isn't that bad -- it's a moderate expansion." "It's not
like the economy is going gangbusters here but the reason the Fed tightened up
through mid-2006 was to slow this economy down without breaking it and I think
the employment data we've seen suggest they did a pretty darn good job of
that." Investors appeared unfazed by comments from Fed Vice Chairman Donald
Kohn, who said access to credit for businesses and consumers won't likely be as
readily available and as inexpensive as it had been a few months ago, even if
the credit markets continue their recovery from recent tightness.
In corporate news, aluminum maker and Dow component Alcoa Inc. said Thursday
it expects to book charges of $845 million on the planned sale of its packaging
and consumer products businesses. Alcoa, which rose $1.15, or 3 percent, to
$38.81, also said it plans to restructure its electrical and electronic
solutions segment. Blackberry maker Research In Motion Ltd. rose $11.41, or
11.4 percent, to $111.95 after reporting its profit and revenue more than
doubled in the second quarter on strong growth in its subscriber base. Results
were in line with analyst expectations. Advancing issues outnumbered
decliners by more than 3 to 1 on the New York Stock Exchange, where volume came
to 493.3 million shares. Overseas, European markets advanced following the
U.S. jobs report. Britain's FTSE 100 gained 0.73 percent, Germany's DAX index
rose 0.72 percent, while France's CAC-40 rose 0.67 percent. In Asia, Japan's
Nikkei stock average closed down 0.16 percent and Hong Kong's Hang
Seng index gained 3.18 percent. New York Stock Exchange: http://www.nyse.com
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