Investors piled in to stocks Friday after key economic data showed inflation in check, keeping Wall Street's three-day winning streak alive. Recent worries about rising interest rates were pushed aside as investors focused on a favorable report on consumer prices.
On Friday, the Dow Jones industrial average was up 85.76 points, or 0.63%, to 13,639.48. The broader S&P 500 index was up 9.94 points, or 0.65%, at 1,532.91.
The tech-heavy Nasdaq Composite index was up 27.3 points, or 1.05%, to 2,626.71.
The Dow and S&P 500 climbed back to just below their record highs on Friday's so-called Quadruple Witching, when the monthly stock and index option expirations coincide with the quarterly expiration of stock and index futures contracts.
The U.S. consumer price index rose to 0.7% in May, slightly above expectations of 0.6%, but the core rate, which excludes volatile food and energy prices, was up just 0.1%. The moderate core figure signaled that overall inflation is surprisingly well under control (see BusinessWeek.com, 6/15/07, "Caging the Inflation Monster").
Bond yields have moved higher in the last two weeks, with the yield on the 10-year Treasury note pushing through the 5% level last week and then breaking but pulling back from 5.25% this week. Stewart Beach, senior vice president at Old Second Wealth Management, sees little reason to worry because rates remain historically low. "It's still cheap money for corporations," he says. "If we get to 6% that might be a different story."
Beach says this week's data dispelled the danger that the Federal Reserve would raise interest rates. Beach believes the Fed will be on hold for the next five to six months. If more problems develop in the housing market, the Fed could even cut rates, he says.
And next week will bring provide some fresh clues as to the health of that beleaguered sector. Investors will focus on housing starts, which are expected to decline in May after a surprisingly upbeat result in April. A report on mortgage applications and the National Association of Home Builders' Housing Market Index will round out
the week's key releases.
In other economic news released Friday, U.S. industrial production was flat in May, while most expected a 0.2% increase and April product was up 0.4%. Motor vehicle production fell 0.5% and utilities fell 1.3%.
U.S. consumer sentiment fell to 83.7 in June from 88.3 last month according to the preliminary Reuters/University of Michigan survey. It's the lowest score since August 2006.
Standard & Poor's says Friday's data indicate the second quarter economy is growing at faster pace with a relatively lower level of inflation.
In the energy markets Friday, July WTI crude oil was up 35 cents to $68.00 per barrel.
Among stocks in the news on Friday, Adobe Systems (ADBE) was down after it reported earnings per share of 25 cents in the second quarter, vs. 20 cents a year ago. Earnings met expectations, and revenues were up 17%, but the software maker forecasted earnings for next quarter that were lower than many expected.
Intel Corp. (INTC) moved higher after it was upgraded by Goldman Sachs analyst James Covello from neutral to buy. Covello says a move by rival Advanced Micro Devices Inc. to an outsourced business model will benefit Intel over the long-term.
Smith & Wesson Holding Corp. (SWHC) impressed Wall Street with reported earnings of 12 cents per share, vs. 11 cents a year ago on a 59% rise in net product sales. Excluding a recent acquisition, sales grew 22.3%. The firm's raised its 2008 sales target $10 million to $330 million.
Winnebago Industries (WGO) reported earnings per share of 35 cents, vs. 40 cents a year ago, despite a 5.2% rise in revenues. The firm cited an increase in sales of lower-margin motor homes, and rising material and labor costs. The stock was trading lower.
Monsanto Co. (MON) raised its earning guidance for fiscal 2007 to a range of $1.75 to $1.80 per share, up 15 cents. The firm cited the continuing adoption of its corn seeds, strength in its herbicide business and a better-than-expected tax rate. The stock was up almost 5%.
Expedia Inc. (EXPE) was trading higher on an unconfirmed reporte that Chairman Barry Diller might take the firm private at $30 per share.
NYMEX Holdings (NMX) was up after reports the commodity exchange is talking with possible buyers, including the Chicago Mercantile Exchange (CME) and NYSE Euronext (NYX).
European stock markets were up again on Friday. In London, the FTSE 100 index rose 1.1% to 6,723. Germany's DAX index moved up 2.29% to 8,028.59. In Paris, the CAC 40 index was up 0.96% at 6,1.
Asian markets moved higher on Friday. In Japan, the Nikkei index was up 0.72% to 17,971.49. In Hong Kong, the Hang Seng index moved 0.72% higher to 21,017.05. In China, the Shanghai Composite index rose 0.43% to 4,132.87.
Treasuries rallied Friday as a 0.1% rise in May core CPI that was below expectations eased concerns of inflation and upward pressure on interest rates. This overshadowed the solid June Empire State index, while a drop in June preliminary Michigan sentiment did not appear to impact the market.
The 10-year note climbed 16/32 to 94-00/32 for a yield of 5.15%. The 30-year bond rallied 23/32 to 92-17/32 for a yield of 5.25%.