Light-Volume Rally Raises Little Strong Optimism
Stocks appeared to be hard at work on a rally for most of the day, despite an industrial-strength jobs report. But given the session's featherweight volume, most traders said the upside was merely masking an extended coffee break.
Before the market opened, the
Labor Department
reported that the U.S. unemployment rate fell to 3.9% in April, matching a January 1970 low. Economists polled by
Reuters
had expected the rate to drop to 4%. After some flip-flopping in the futures markets, stocks leapt higher when the market opened.
The
Dow Jones Industrial Average
climbed 165.37, or 1.6%, to 10,577.86, regaining less than half of the nearly 400 points it surrendered in the previous three trading sessions. The
Nasdaq Composite Index
rose 96.58, or 2.6%, to 3816.82, helped by gains in semiconductor and biotech stocks. The small-cap
Russell 2000
gained 10.93, or 2.2%, to 512.84, while the broader
S&P 500
sailed up 23.06, or 1.6%, to 1432.63.
"Once the initial selloff was contained at the lows of the
Globex
session, there was some short-covering, and some folks on the sidelines felt, 'We might as well try to run this thing up,'" said Bill Meehan, chief market analyst at
Cantor Fitzgerald
. Things pretty much quieted down about two hours into trading though, he said. Nearing the end of trading, he said, "breadth and volume are nothing to write home about."
"It looks pretty good, but there is a whole lot of nothing going on," said Jay Meagrow, vice president of trading at
McDonald
in Cleveland. Indices "are exaggerated to the upside on very light volume," he said. Referring to the upcoming
Federal Open Market Committee meeting May 16, Meagrow said, "This meeting will be big. That is all anybody is going to talk about."
Indeed, there was a sense that the strong employment data helped lock in the possibility of a 50-basis-point hike in the
fed funds rate at the next meeting. Oddly enough, that news seemed to alleviate some of the fear and uncertainty pressuring the market in the past week.
At this point, some believe anything less than a half-point hike could confuse the market. Meehan believes that a mere quarter-point hike might "break" the market. On the sense that the
Fed is not being as pre-emptive as needed. "The assumption is that the Fed will have everything under control. If they did something that led the bond market to believe they are not acting appropriately, or there is an opinion that they're behind the curve," on inflation, it could shake confidence, he said.
On the other hand, he said it is possible a half-point hike could even be followed by an intermeeting hike if the market takes off too soon. "If they raise 50 basis points on May 16 and Wall Street says, 'Hey, this is a lot of fun,' and starts to rally, what you have left is
Greenspan wondering what it may take to rein things in," he said.
With
retail sales and the
Producer Price Index on the way, the overall feeling is that volatile price swings are practically a given next week.
Rate-Sensitive Stocks Hold Firm
For today, at least, interest-rate-sensitive stocks held up well, with
American Express
(AXP) - Get Report
up 1% and
Merrill Lynch
(MER)
moving up 4.2%.
Chase Manhattan
(CMB)
dipped 1.5% while
J.P. Morgan
(JPM) - Get Report
inched 0.2% lower. The
American Stock Exchange Broker/Dealer Index
edged up 0.8% while the
Philadelphia Stock Exchange KBW/Bank Index
rose 0.4%.
Cyclicals were mixed with the
Dow Jones Transportation Average
cruising up 81.15, or 2.9%, to 2876.11 while the
Dow Jones Utility Average
nosed down 2.53, or 0.9%, to 318.26.
Technology stocks were higher across the board .
TheStreet.com Internet Sector
index rose 8.19, or 0.9%, to 897.76, helped by strength in
Amazon.com
(AMZN) - Get Report
, up 6.2%, and
CMGI
(CMGI)
, up 3.5%.
Semiconductor stocks were strong, with the
Philadelphia Stock Exchange Semiconductor Index
up 1.6%. Chip giant
Intel
(INTC) - Get Report
rose 3.2% while
Advanced Micro Devices
(AMD) - Get Report
gained 2.5%.
Biotechs, which Meehan called a measure of "speculative juices," bounced a bit with the
Nasdaq Biotechnology Index
up 4.4%.
Amgen
(AMGN) - Get Report
added 3, or 5.3%, to 59 9/16 while
Genentech
(DNA)
hopped 4 15/16, or 4.2%, to 123 15/16.
The 10-year Treasury fell 14/32 to 99 29/32, pushing the yield up to 6.511%.
For the week, the Dow was down 1.5%, while the Nasdaq Composite lost 1.1%. The broader S&P 500 dipped 1.4%, while the Russell 2000 moved up 1.3%. The
Dow Jones Transportation Average
gained 0.9% while the Dow utilities edged up 0.2%. The
American Stock Exchange Composite Index
rose 0.7% and the DOT moved up 0.3%.
Market Internals
Breadth was positive on both exchanges on lighter-than-usual volume.
New York Stock Exchange:
1,667 advancers, 1,241 decliners, 800.5 million shares. 70 new 52-week highs, 54 new lows.
Nasdaq Stock Market:
2,262 advancers, 1,675 decliners, 1.18 billion shares. 33 new highs, 63 new lows.
For a look at stocks in the news, see the Company Report, published separately.
