Benign inflation data cheers stock market
NEW YORK » Bullish data on inflation and the housing market sent stocks mostly higher yesterday, with the Dow Jones industrials and Standard & Poor's 500 index posting nearly five-year highs for the third straight session. A jump in oil prices moderated the gains, however, and the Nasdaq composite index finished lower.
Wall Street welcomed the latest report from the Labor Department, which showed consumer prices rising just 0.1 percent in February, far less than the 0.7 percent jump in January. Core CPI, with food and fuel prices removed, also rose 0.1 percent, down from 0.2 percent the previous month.
Combined with better-than-expected housing construction in February, investors were reassured that the economy continues to grow while inflation remains in check. That would allow the economy to withstand further interest rate increases from the Federal Reserve, which is expected to approve another quarter-percentage-point rate increase when it meets March 28.
"The consumer price index rise was very modest. It suggests, as I think many of us have been forecasting, that inflation is in the process of moderating," said Hugh Johnson, chairman and chief investment officer at Johnson Illington Advisors. "The good news is investors can feel somewhat more comfortable about monetary policy."
The Dow rose 43.47, or 0.39 percent, to 11,253.24, its highest close since May 22, 2001, when it finished at 11,257.24.
Broader stock indicators were narrowly mixed. The S&P added 2.31, or 0.18 percent, to 1,305.33, its best close since May 22, 2001. The Nasdaq composite index slid 12.28, or 0.53 percent, to 2,299.56.
Bonds mounted another strong rally, with the yield on the 10-year Treasury note falling to 4.64 percent from 4.73 percent late yesterday. The dollar lost ground against most major currencies, while gold prices also fell.
Rising crude oil futures eroded some of the major indexes' earlier gains. A barrel of light crude settled at $63.58, up $1.41, on the New York Mercantile Exchange.
Fears of a declining housing market eased after the Commerce Department reported an annualized 2.145 million new homes under construction in February, down slightly from 2.216 million in January but a better figure than economists had expected.
First-time unemployment claims rose again, with 309,000 new jobless claims filed last week, up from 304,000 the previous week. The rising trend, while troubling to the labor market, also reassured investors that consumers' spending power would remain moderate, lowering the risk of inflation and, in turn, rate hikes from the Fed.