Closing Market Report

Star-Bulletin news services

Thursday, October 28, 1999

Dow soars 227 on
benign wage data

The Nasdaq skies 72 and the
S&P 500 jumps 45 as easing
inflation worries ignite a broad rally

NEW YORK -- A benign report on labor costs gave Wall Street its best day in seven weeks today as investors who had been selling or staying on the sidelines jumped back into the market on the belief that inflation is under control.

The Dow Jones industrial average rose 227.64, or 2.2 percent, at 10,622.53, extending yesterday 92-point gain. The Standard & Poor's 500 rose 45.73, or 3.5 percent, to 1,342.44, and the Nasdaq composite index rose 72.67, or 2.6 percent, to 2,875.19.

Advancing issues outnumbered decliners by a 12-to-5 margin on the New York Stock Exchange, with 2,074 up, 941 down and 462 unchanged. NYSE volume totaled 1.1 billion shares vs. 898.96 million yesterday.

The NYSE composite index gained 20.01 to 618.15; the American Stock Exchange composite rose 7.24 to 793.55; and the Russell 2000 index of smaller companies climbed 6.04 to 422.81. The rally was solid and broad-based, but some analysts believed the wave of buying was an extreme reaction to fairly modest government data.

"The market was looking for an excuse to go up," said Bernie Schaeffer, chairman of Schaeffer's Investment Research Inc.

Stocks shot higher after the Labor Department said its employment cost index rose by 0.8 percent in the third quarter, slightly lower than the 0.9 percent increase many economists were expecting. Economists view the index as a significant barometer of inflationary pressures.

In recent weeks, the market has been dominated by a debate over whether the Federal Reserve will raise interest rates for the third time this year in its continuing effort to ward off inflation.

Traders said the employment cost index might not deter the Fed from implementing another rate hike when its policy-writing Open Market Committee meets Nov. 16, but they believed the next increase could be the last for a while.

"The issue is not closed, of course," said Michael Moran, chief economist at Daiwa Securities America, pointing out that the Fed will also carefully monitor next week's employment report. "But inflation pressures are not problematic at this time."

Bond prices rose for a second straight session. The price of the Treasury's main 30-year bond rose 1 point, or $10 per $1,000 in face value, pushing the yield up to 6.25 percent, from 6.33 percent late yesterday. Stocks have drawn some additional support from the retreat in bond yields, which earlier this month rose high enough to lure some investors away from stocks.

The promise of stabilizing interest rates boosted bank stocks for a second straight session. Citigroup, Chase Manhattan and American Express all rose.

Banks are especially sensitive to rising rates because higher rates can dissuade customers from borrowing money, cutting into lending volume. Also, higher rates can reduce the value of a financial firm's fixed holdings.

On the Nasdaq, fell. The online retailer said late yesterday that while its third-quarter results topped expectations, losses more than tripled from a year ago as the company spent heavily to expand its online offerings.

MCI WorldCom rose after saying third-quarter operating profits nearly tripled from the same period in 1998. The telecommunications company earned $1.09 billion, or 55 cents per share, beating analysts' expectations of 54 cents per share.

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