U.S. stocks ended the week on a note of strength, extending Thursday's gains as investors seemed willing to ignore a pickup in the pace of headline inflation and take comfort in the steady rate of core inflation, which excludes food and energy prices.
Oil prices cooperated by retreating again, enabling the markets to believe the Fed won't feel compelled to raise rates to control inflation expectations any time soon.
On Friday, the Dow Jones industrial average finished 165.77 points, or 1.37%, higher at 12,307.35. The broader Standard & Poor's 500-stock index rose 20.16 points, or 1.50%, to end the session at 1,360.03.
The tech-heavy Nasdaq composite index was the best performer among the major market benchmarks, rising 50.15 points, or 2.09%, to 2,454.50.
On the New York Stock Exchange, 23 stocks gained ground for every eight that were lower, while on the Nasdaq the ratio was 21-8 positive.
The dollar index was up but faltering as the G8 finance ministers meet in Osaka, Japan to discuss the weak dollar, economic growth, higher oil prices and inflation, S&P MarketScope said.
Shares of Lehman Brothers Holdings (LEH), badly battered in the past week by concerns over its earnings warning and need to raise capital and the ouster Thursday of its chief financial and operating officers, gained back some ground on Friday. Bloomberg News reported that Blackrock President Robert Kapito said Blackrock bought Lehman shares in its secondary offering this week. "We have confidence in the firm, in the leadership," Kapito said. Lehman's second-quarter results are slated to come out on June 16.
Just hours after announcing that any hopes of a takeover deal with Microsoft (MSFT) were dead in the water on Thursday, Yahoo Inc. (YHOO) said it had signed an agreement with Google (GOOG) that will help improve its results in the Internet search advertising market. Yahoo said the arrangement could boost its annual revenue by $800 million, but that didn't stop investors from selling shares, eyeing possible antitrust issues and still angry that Yahoo didn't accept Microsoft's initial offer.
In a testament to how big energy companies' capitalizations have grown with the near-doubling of oil prices over the past year, Standard & Poor's Index Services announced that Cabot Oil & Gas (COG) and Massey Energy Co. (MEE) will be added to the S&P 500 index as of June 20, replacing Brunswick Corp. (BC) and OfficeMax (OMX), respectively.
Capping this week's economic data, the U.S. consumer price index rose 0.6% in May, more than anticipated, driven by a 4.4% rise in energy prices, with gas prices surging 5.7% after a 2.0% decline in April. The core index, which excludes food and energy prices, climbed 0.2%, in line with expectations, but restrained by a 0.3% drop in apparel prices. Consumer prices are now growing at a headline pace of 4.2% from a year ago, vs. a 3.9% pace in April, while the core pace remained at 2.3% for a fourth month in a row, Action Economics said.
The University of Michigan consumer sentiment index came in lower than expected, falling to 56.7 in June, below the anticipated 59.0 level, and significantly lower than the 59.8 reading in May.
Oil prices lost steam again despite mounting concerns over supply disruption with a strike by Chevron workers in Nigeria possibly starting as early as June 18 and Pemex announcing it was cancelling some of its contracts due to supply shortages. Refiners are also saying they are paying a premium for physical crude, which shows how tight supplies are, according to CNBC Business News.
WTI crude oil futures for July delivery settled $1.88 lower at $134.86 a barrel.
Among other stocks in the news on Friday, Steel Dynamics (STLD) shares rose after the company raised its second-quarter earnings guidance to 90 to 95 cents a share from 80 to 90 cents a share, based primarily on stronger-than-anticipated shipping volume and selling values for flat-rolled steel products and stronger volume and margins in recycling.
Apollo Group Inc. (APOL) shares shot up after the company announced, in an 8-K filing, tuition increases for its University of Phoenix students which will go into effect for courses beginning on or after July 1, 2008. Tuition increases will include an increase of about 10% for its associate programs and other selective tuition increases averaging 4% to 5%, depending on geographic area and program, for bachelor and masters degree programs.
Coca-Cola Hellen ADS (CCH) shares plummeted after the beverage distributor reportedly cut its 2008 earnings guidance, with volume growth expected at 6%, down from 7% previously. The company now sees earnings before interest and taxes to grow 5% to 7% rather than 11% to 13%, as previously forecast. Earnings are projected at EUR 1.37 to EUR 1.40, down from a prior target of EUR 1.46 to EUR 1.49. The company notes weakening market conditions and the continued rise in global oil prices that has negatively impacted its cost base.
Fifth Third Bancorp (FITB) shares fell after BMO Capital Markets downgraded the stock to market perform from outperform, predicting that net charge-offs will be higher than management's forecast and more aggressive reserve building will be needed. BMO notes that housing conditions and the overall economy have gotten much worse since March 31 and expects Fifth Third to cut its dividend by at least 50% and will possibly need a capital infusion as tangible common equity ratio is likely to fall below 5.9% by year-end even with the dividend cut, reflecting higher credit costs.
Major European indexes were higher Friday. In London, the FTSE 100 index gained 0.21% to trade at 5,802.80. In Paris, the CAC 40 rose 0.21% to 4,682.30, while Germany's DAX index climbed 0.76% to 6,765.32.
In Asia, Japan's Nikkei 225 ended 0.61% higher at 13,973.73, while Hong Kong's Hang Seng index lost 1.87% to finish at 22, 592.30.
Treasury bonds reversed to the downside on strength in equities and despite acceleration in the pace of headline inflation. The 10-year note moved down in price to 96-30/32 for a yield of 4.25%, and the 30-year bond fell to 93-16/32 for a yield of 4.79%.