What a Week: Rally Slows

After November's strong rally, the stock market sought to start December on an equally positive note this week amid fresh evidence that the economy is still powering ahead. Instead, a five-week rally slowed as inflation concerns revived expectations the Federal Reserve might raise interest rates well into 2006.

The Dow Jones Industrial Average interrupted five weeks of gains, losing 0.4% on the week despite a strong gain Thursday. The S&P 500 likewise fell 0.2%. The Nasdaq Composite, however, put in its seventh week of gains, rising 0.4%.

Inflation concerns were evident in the bond market, where the price of longer-dated Treasuries declined for the first week in four. As the benchmark 10-year Treasury bond fell this week, its yield rose to 4.52% compared with 4.43% last Friday.

In November, long bond yields had been falling as inflation expectations diminished, helping support the rally in stocks. The yield of the 10-year bond had risen to as high as 4.66% in early November before falling to 4.41% by the end of the month.

Falling Treasury yields coincided with a strong November performance for stocks. The Dow and the S&P each advanced 3.5% in the month. The Nasdaq put in an even better performance, with a monthly gain of 5.2%.

Stocks put in a mixed performance Friday after a strong November employment report, together with rising hourly earnings, bolstered the case for a hawkish Fed. The Dow fell 35.06 points, or 0.32%, to 10,877.51. General Motors (GM Quote) remained the biggest drag on the Dow, losing 2.3% on the day. Ford (F Quote) advanced after announcing it would close more plants and cut jobs.

The S&P, after trading in negative territory for most of the session, finished on a modest gain of 0.41 points, or 0.03%, at 1265.08. The Nasdaq, meanwhile, advanced 6.20 points, or 0.27%, to 2273.37.