Rate Relief Propels Stocks

After a 1.2% rally for the day, the Dow is now only about 150 points below its all-time high.
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Updated from 4:07 p.m. EDT

A deceleration in payroll growth last month bolstered views that the

Federal Reserve

can stop raising interest rates and sent stocks surging Friday.

The

Dow Jones Industrial Average

gained 138.88 points, or 1.21%, to 11,577.74, and is now only around 150 points below its all-time high. The

S&P 500

was up 13.51 points, or 1.03%, at 1325.76, and the

Nasdaq Composite

rose 18.67 points, or 0.8%, to 2342.57.

The Dow started the day at its best level in six years. For 2006, the average has gained about 860 points, or 8%. Of the Dow's 30 members, only

Procter & Gamble

(PG) - Get Report

closed lower.

General Motors

(GM) - Get Report

and

Home Depot

(HD) - Get Report

rose more than 2.6%.

For the week, the Dow gained 210 points, or 1.8%. The S&P 500 rose 15 points, or 1.1%, and the Nasdaq finished the week up 20 points, or 0.9%.

"The markets ended the week on a strong note, thanks to the Dow leading us higher," said Michael Sheldon, chief market strategist with Spencer Clarke. "This is a trend we haven't seen for some while and will hopefully continue."

About 1.69 billion shares traded on the

New York Stock Exchange

, with advancers beating decliners by a 3-to-1 margin. Trading volume on the Nasdaq was 1.98 billion shares, and winners topped losers 5 to 3.

According to the Labor Department, the U.S. economy created 138,000 nonfarm jobs last month, missing the 205,000-job consensus. The unemployment rate held at 4.7% in April, and average hourly earnings rose 0.5%. Economists, on average, were predicting an unemployment rate of 4.7% and average hourly earnings growth of 0.3%.

The advance in February and March payrolls was revised downward by 36,000 jobs.

"The alarming note is that the hourly earnings went up, which shows wage inflation," says Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "We may get an offset there with a lower-than-expected

payroll number. However, this is a little slower than we'd like to see."

To view Gregg Greenberg's video take on today's market, click here

.

Currently, another quarter-point hike in the fed funds rate to 5% next week is priced into financial futures. For the FOMC's June 28 and 29 meeting, the odds of another quarter-point hike fell to about 34% after the report from 44% before it. Policymakers have lifted rates at 15 straight meetings in the last 23 months.

"The important thing is that there will be some pressure off the bond market," added Hyman. "It takes a bit of pressure off the Fed for the near term."

The 10-year Treasury surged 11/32 in price to yield 5.11%, and the dollar dropped against the yen and euro. The benchmark Treasury was yielding 5.15% before the jobs report.

"The decline in the dollar is a very notable development," said Sheldon. "The key for the market is whether this decline becomes a rout or a gentle decline. If the selling becomes more serious, it could spell trouble for financial markets."

Crude futures inched higher after tumbling 6% over the previous two sessions. The June contract rose 25 cents to close $70.19 a barrel. Energy prices have been guided by concerns about the nuclear ambitions of Iran.

Precious metals continued their march to near-multiyear highs. Gold for June delivery finished up $7.80 to $684.30 an ounce, while silver added 6.5 cents at $13.89 an ounce.

"We're continuing to see a bull market for commodities, which should stick around for a while," said Sheldon. "Geopolitical issues overseas have become such a driving force lately."

By sector, the S&P Retail index was higher by 1.9%, the Philadelphia Oil Service Sector index finished up 1.7%, the Amex Airline index rose 1.3%, and the Philadelphia/KBW Bank Sector index added 1.2%.

In corporate news,

Medco's

(MHS)

first-quarter earnings fell sharply from a year ago due to a litigation charge. Excluding that and other items, the pharmacy benefits manager earned 56 cents a share, a penny better than expected. Medco was higher by $2.01, or 4%, to close at $52.78.

Medco competitor

McKesson

(MCK) - Get Report

also said late Thursday that quarterly earnings fell from a year ago, weighed down by the cost of changing some supplier contracts. Adjusted earnings of 68 cents a share matched forecasts. McKesson climbed $1.62, or 3.4%, to $48.88.

Toll Brothers

(TOL) - Get Report

reported second-quarter homebuilding revenue of $1.4 billion, up 18% from a year ago. The mansion maker also said the value of its contracts fell 29% in the period, reflecting concerns about price buoyancy. Toll Brothers added $1.21, or 4.1%, to $30.85. The higher finish helped the Philadelphia Housing Sector index, which rose 2.5%.

Oil and gas company

El Paso

(EP)

posted first-quarter earnings of $346 million, or 49 cents a share, more than tripling results from a year ago due mainly to derivatives markups. Revenue jumped 41% from last year to $1.53 billion. El Paso surged $1.69, or 12.5%, to $15.18.

Warner Music

(WMG) - Get Report

said it lost $7 million, or 5 cents a share, in the March 31 quarter, narrower than the 16-cent Thomson First Call consensus. Revenue rose 4% to $796 million, also exceeding forecasts. Warner tacked on 76 cents, or 2.6%, to $29.50.

A 25-million-share secondary offering of the

NYSE Group

(NYX)

priced last night at $61.50 apiece, slightly below the 4 p.m. close. The deal will raise more than $1.5 billion for seatholders and other owners of the exchange. Shares rose $5.83, or 9.3%, to $68.70.

McData

(MCDTA)

tamped down first-quarter guidance Friday, saying it expects revenue to be at the low end of its previously stated range of $167 million to $177 million. Pro forma earnings could also trail estimates, the company said. Shares dropped 19 cents, or 4.2%, to close at $4.29.

The earnings season rolls on next week, with reports expected from

Disney

(DIS) - Get Report

,

Cisco

(CSCO) - Get Report

,

Kohl's

(KSS) - Get Report

and

American International Group

(AIG) - Get Report

.

Among ratings moves, Credit Suisse initiated coverage on many telecom names. The firm assigned

AT&T

(T) - Get Report

,

BellSouth

(BLS)

and

Sprint Nextel

(S) - Get Report

with outperform ratings.

Credit Suisse also gave

Verizon

(VZ) - Get Report

a neutral rating with a price target of $37, while

Qwest

(Q)

was started with an underperform rating and a $6 stock price target.

European shares were higher, with London's FTSE 100 finishing up 0.9% to 6068 and Germany's Xetra DAX gaining 1.2% to 6113. Markets in Japan and Hong Kong were closed for holidays.