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Stocks, bonds
rise in tandem
NEW YORK >> The financial markets took an interesting turn this past week, with stocks and bonds rising in tandem instead of heading in their usual opposite directions.
Behind their united front were hints that the Federal Reserve might lower interest rates again. Analysts say that if the Fed delivers, both stocks and bonds stand to benefit for at least a while. It's hard to tell which market will be the longer-term winner.
"The common theme of lower rates is supportive for both markets," said Lynn Reaser, chief economist and senior market strategist at Banc of America Capital Management.
Stocks often get a boost when the Fed lowers interest rates. Investors expect companies and individuals to take advantage of the lower borrowing costs to spend more, giving corporate profits and in turn equity prices a lift.
Bond prices often rise in the anticipation of lower interest rates as investors want to grab the securities before the rate of return drops further. Bond investors are also looking for a safe place to put cash, because when the Fed is pushing rates down, the economy is struggling and stocks are wobbling. Then after the cuts, bond prices usually fall as demand for lower-yielding notes drops.
Both markets rallied this past week on bets the Fed will lower rates at its next meeting next meeting on June 24-25. The Fed suggested a cut could be in the offing due to a threat of deflation. Economies that are in deflation suffer as unemployment worsens and a demand for products further slackens.
The Fed has cut rates 12 times since early 2001, pushing the federal funds rate to a 41-year low of 1.25 percent, to stimulate the economy.
The stock market's major indexes all ended the week higher. The Dow Jones industrial average claimed its third straight weekly advance, while the broader market climbed higher for a fifth consecutive week. It was first five-week winning streak since December 2001 for the Nasdaq composite index and since August 2002 for the Standard & Poor's 500 index.
There was also a bond-buying surge that sent the benchmark 10-year Treasury note to a 45-year low Wednesday.
For the week, the Dow rose 74.37, or 0.9 percent. It closed yesterday at 8,678.97.
The Nasdaq had a weekly gain of 18.38, or 1.2 percent, closing at 1,538.53 yesterday.
For the week, the S&P rose 10.89, or 1.2 percent, to finish at 944.30.
The Russell 2000 had a weekly advance of 1.16, or 0.3 percent, closing at 414.69.
The Wilshire 5000 Total Market Index, which tracks more than 5,700 U.S.-based companies, ended the week at 8,989.87, up 106.53 from the previous week. A year ago, the index was at 10,474.18.
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