MARKET SNAPSHOT--Equities propelled by soft jobs data
Payrolls up a mere 11,000; Nasdaq climbs above 4,000
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 2:17 PM ET Jul 7, 2000 NewsWatch
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NEW YORK (CBS.MW) - Stocks maintained healthy, across-the-board gains Friday as a softer-than-expected employment report reinforced the view that the U.S. economy is slowing and that the Federal Reserve can perhaps stay sidelined when it meets in August.
Non-farm payrolls rose by 11,000 in June compared to expectations for a 277,000 increase. The unemployment rate edged down to an as-expected 4.0 percent from May’s 4.1 percent. Average hourly earnings also rose by an as-expected 0.4 percent following a 0.1 percent rise in May. See full story and view Economic Preview, economic calendar and forecasts and historical economic data.
Inside the broad market, most sectors enjoyed gains, though retail, biotech and bank stocks were the star performers. Downside groups included oil service, chemical and brokerage shares. Within technology, the buying was across the board, with chip and software stocks continuing their rebound after taking a beating on Wednesday.
“The market is reacting to lowered Fed tightening expectations. But the market will put the Fed aside and focus on earnings for the next couple of weeks,” said Peter Boockvar, equity strategist at Miller, Tabak & Co. Earnings, he added, will dictate the market’s moves.
Friday’s report was a good set of numbers for the market, said Joe Liro, equity analyst at Stone & McCarthy Research Associates. Hourly earnings growth suggests that consumer spending remains healthy but wasn’t strong enough to bring up inflation concerns, he added.
The Dow Jones Industrial Average piled on 128 points, or 1.2 percent, to 10,609 at 2:15 p.m.
“The market perceives the Fed is coming to an end of its tightening cycle,” said Donald Selkin, chief market strategist at Joseph Gunnar. “In addition, we’re getting close to the end of the pre-announcement period and earnings will be good,” he added.
Selkin notes that there are many pockets of strength in the market -- like the biotechs -- and that breadth has improved over the past couple of sessions.
Leaders on the upside were shares of Home Depot, Wal-Mart, Hewlett-Packard and SBC Communications, which rebounded after slumping on Thursday. The biggest downside movers were Alcoa, Honeywell and Philip Morris.
Selkin noted that IBM’s recovery Friday lent additional support to the Dow. Big Blue (IBM: news, msgs) was a big drag on the Dow Industrials over the past couple of trading sessions but gained 2 11/16 to 103 15/16 on Friday.
The Nasdaq Composite climbed 70 points, or 1.8 percent, to 4,031 -- crossing the 4,000 mark for the first time since June 22. The Nasdaq 100 Index advanced 64 points, or 1.7 percent, to 3,858.
The Standard & Poor's 500 Index gained 1.5 percent while the Russell 2000 Index of small-capitalization stocks added 0.8 percent.
In the meantime, the market is digesting an earnings warnings from Compuware (CPWR: news, msgs). The company said earnings per share for its fiscal first quarter will come in at 7 to 9 cents a share compared to the First Call estimate of 15 cents a share, blaming disappointing software sales. The stock was halted.
Compuware is a component of the CBOE Computer Software Index ($CWX: news, msgs), which added 2.9 percent on Friday. On Wednesday, the index took a drubbing due to warnings of an earnings shortfall from BMC Software and Computer Associates. Helping the index were gains in shares of PeopleSoft (PSFT: news, msgs), which added 1 15/16 to 17 3/16 on the heels of upgrades from Lehman Brothers and Merrill Lynch.
Volume came in at 660 million on the NYSE and at 1.05 billion on the Nasdaq Stock Market. Breadth remained positive, with advancers outnumbering decliners by 16 to 11 on the NYSE and by 20 to 18 on the Nasdaq.
Inside the jobs data
While the headline payrolls number was shockingly soft, Henry Willmore, senior economist at Barclays Capital, believes the report was a return to normalcy following an incredibly weak May when removing the distortions created by the census workers.
In fact, private payrolls rose by a healthy 206,000 while the government lost a hefty 195,000 jobs -- including 190,000 temporary workers hired for the census.
“The June numbers leave the Fed on track to raise rates by 25 basis points,” Willmore said, noting, however, that the central bank will view a smorgasbord of economic figures before making its decision on rates on August 22.
If the numbers released from now until August are uniformly weak, Willmore believes the Fed will stand pat on rates in August. But if they give a mixed reading of the economy, he believes the Fed will opt to raise short-term rates.
“It’s their last chance before the presidential election,” he concluded.
Joel Naroff, chief economist at Naroff Economic Advisors, stressed the importance of looking beyond the headline numbers.
“Some will argue that today’s employment report clearly puts the Fed on hold. Indeed, this was a tame report that would not seem overly threatening. But that really is not the whole story,” Naroff said.
“The private sector job gain and the hourly wage increase were not comforting at all and the number of hours worked did rebound. If we see the same numbers in the July report, the conclusion will be that the job market has not slowed measurably and the pressure will be back on the FOMC to hike rate,” the economist concluded.
Sector movers
Bank stocks got a boost from the friendly employment numbers and the rallying bond market. The Phlx Bank Index ($BKX: news, msgs) gained 2.3 percent and the CBOE Bank Index ($BIX: news, msgs) climbed 3.4 percent. But the Amex Securities Broker/Dealer Index ($XBD: news, msgs) lost 0.5 percent.
The brokerage sector came under pressure as Merrill Lynch (MER: news, msgs) fell 4 3/8 to 119 5/8. The Wall Street Journal said the company may cut its workforce by as much as 2,000 -- which would be the heftiest slash since 1998, when the Asian crisis and the Long-Term Capital Management debacle produced produced a rout in financial markets worldwide. Also moving lower were shares of Goldman Sachs (GS: news, msgs), off 1 3/16 to 92, and Morgan Stanley Dean Witter (MWD: news, msgs), off 5/8 to 88 7/8.
Chip stocks continued their ascent and the Philadelphia Semiconductor Index ($SOX: news, msgs) added 3.5 percent. The index is up 8.2 percent over the past couple of sessions after falling 9.3 percent on Wednesday.
Among the stocks recovering from Wednesday’s body shot from Salomon Smith Barney were Texas Instruments (TXN: news, msgs), up 2 15/16 to 69 15/16, Advanced Micro Devices (AMD: news, msgs), up 3 1/8 to 80 5/8, and National Semiconductor (NSM: news, msgs), up 2 7/8 to 52 3/8. But Silicon Storage (SSTI: news, msgs) continued to slide following the Salomon downgrade on Wednesday and shaved 2 1/8 to 79 1/2 after seeing a big run-up earlier in the week. See Silicon Stocks.
Shares of Sycamore Networks (SCMR: news, msgs) added 10 3/4 to 121 after announcing that it won a contract worth up to $420 million to provide networking equipment to 360Networks. See full story.
Sycamore is a component of Merrill Lynch’s Broadband Holdrs (BDH: news, msgs), which added 2.1 percent. Also posting nice gains were JDS Uniphase (JDSU: news, msgs), up 4 15/16 to 118 7/8, and Corning (GLW: news, msgs), up 9 to 257. But Qualcomm (QCOM: news, msgs) fell 5 5/16 to 56 3/8 after South Korea’s two mobile telecommunication leaders, SK Telecom and Korea FreeTel said they plan to use Qualcomm competitors’ W-CDMA (Wideband Code Division Multiple Access) technology for their new cell phone networks if awarded licenses from the government. Read the story.
Internet stocks traded in a mixed fashion, weighed down by losses in shares of Yahoo (YHOO: news, msgs), which trimmed 5 5/8 to 116 3/4. The company saw its rating cut to a “buy” rating from a “strong buy” by Deutsche Banc Alex. Brown on concerns over revenue and valuation, among others. See Rating Revisions. Yahoo kicks off earnings season next Tuesday. Merrill Lynch’s Internet Holdrs (HHH: news, msgs), of which Yahoo is a component, shed 1.1 percent. See Net Stocks.
Retail stocks took off on Friday, adding to Thursday’s gains, with the S&P Retail Index ($RLX: news, msgs) up 5.2 percent. The index rose above the 900-mark for the first time since June 5. Among the upside movers were Dow components Home Depot (HD: news, msgs), up7.2 percent, or 3 11/16 to 54 15/16, and Wal-Mart (WMT: news, msgs), which added 3 3/16 to 60 11/16.
Treasury focus
Bond prices rallied on the employment news, with gains spread across the maturity spectrum.
The 10-year Treasury note rose 17/32 to yield 5.98 percent while the 30-year bond gained 26/32 to yield 5.85 percent. See Bond Report.
In the currency arena, dollar/yen added 0.4 percent to 107.83 while euro/dollar lost 0.4 percent to 0.9469. See latest currency rates.
In the commodity market, August crude lost 29 cents to $29.70 while the Bridge CRB index added 0.41 to 218.29.
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Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
