US stocks extend gains
Wall Street extended its rally to a second session today as investors brushed aside mixed signals on inflation a day after the Federal Reserve said it was concerned about rising prices.
The Dow Jones industrial average surged nearly 92 points and the Nasdaq composite index, battered during the market’s May slump, turned positive for the year.
While manufacturing activity slowed in May, high energy and materials costs drove a sharp increase in prices paid and fuelled fears that the Fed could continue lifting interest rates to contain inflation.
But a downward revision to growth in first-quarter wage costs suggested prices were more subdued.
“The trend today looks like confusion to me,” said Scott Merritt, US equities strategist for JPMorgan Asset Management.
Although tomorrow’s job growth data from the Labour Department is expected to provide more clarity on the economy, Merritt said a benign report would do little to help the market’s uncertainty.
“The employment report will only have an impact if it’s significantly to the upside or downside,” he said. “Otherwise it will create more confusion – and that’s what we’re going to get until (the Fed’s June 28-29 meeting).”
Meanwhile, strong May sales boosted the US retail sector and bolstered optimism about the consumer picture. Oil prices also saw another day of losses on data showing increased domestic reserves.
The Dow climbed 91.97, or 0.82%, to 11,260.28. On Wednesday, the Dow gained 74 points after dropping 184 points on Tuesday.
Broader stock indicators surged. The Standard & Poor’s 500 index gained 15.62, or 1.23%, to 1,285.71; the Nasdaq surged 40.98, or 1.88%, to 2,219.86, returning to positive territory for 2006.
Bonds recovered from Wednesday's dive, with the yield on the 10-year Treasury note down to 5.1% from 5.13% late in the prior session. The US dollar was flat against other major currencies; gold prices declined to about 635 495.865 an ounce.
Overseas stock markets recouped earlier losses driven by worries that rising US interest rates will choke global demand. The FTSE 100 gained 0.45%, Germany’s DAX added 0.26% and France’s CAC-40 was higher by 0.35%.
Asian markets fared better too, with Japan’s Nikkei index edging up 0.24% from three-month lows. However, stocks in Hong Kong tumbled 1.34%, as India’s Sensex plunged 3.15%.
Investors returned their focus to inflation data Wednesday after minutes from the Fed’s May 10 meeting said its inflation expectations had increased. With the Fed having said that future rate hikes will depend on the economy’s health, traders have been particularly mindful of any readings on economic growth and inflation.
Many on Wall Street were looking forward to tomorrow’s report on monthly hiring, which is considered a primary indicator of economic conditions. But analysts say the market’s uneasiness was likely to persist until the Fed makes its next move at the end of June.
“At best, we will probably stabilise,” said Art Hogan, chief market analyst for Jefferies & Co. “The worst case is that volatility brings us lower until we get to the next Fed meeting.”
The Institute for Supply Management’s manufacturing index slid 2.9 points to 54.4, but the prices paid index jumped 5.5 points to 77. And while first-quarter productivity growth was revised up to 3.7%, unit labour costs grew just 1.6% versus an initial reading of 2.5%, the Labour Department said.
The department added that first-time jobless claims increased by 7,000 to 336,000 last week, compared with predictions for a 9,000 decline. Elsewhere, April construction spending slipped 0.1% versus forecasts for a 0.1% gain.
Crude futures tailed off after the Organisation of Petroleum Exporting Countries signalled it would not tighten current output, and government data showed another weekly increase in US stockpiles. A barrel of light crude slid 95 cents to settle at 70.34 on the New York Mercantile Exchange.
Retail stocks were in focus as consumers spent freely last month despite soaring gasoline prices. Federated Department Stores added 86 cents to 73.69 on its sharply better-than-forecast May sales; JCPenney also saw strong sales, lifting its stock 4.03 to 64.79.
Meanwhile, Wal-Mart Stores’ modest results sent shares down 6 cents to 48.39.
Japanese vehicle manufacturers again reported outstanding May sales as domestic car companies saw languishing demand. Toyota jumped 1.26 to 108.64, and Honda added 41 cents to 33.44, while General Motors slid 5 cents to 26.88.
Food producer HJ Heinz posted a 19% drop in quarterly profit and said it plans to slash 2,700 jobs and close 15 plants to cut costs. Heinz rose 3 cents to 42.38.
Advancing issues outpaced decliners by almost 4 to 1 on the New York Stock Exchange, where volume of 1.69 billion shares fell behind the 1.99 billion shares that changed hands on Wednesday.
The Russell 2000 index of smaller companies gained 15.49, or 2.15%, to close at 736.50.
