By John J. Edwards III
Wall Street is reacting joyously to the weak
Employment Cost Index
report released this morning. The first-quarter figure had been expected to come in at 0.9%, up a bit from 0.8% in the fourth quarter. Instead, the closely watched measure of wages, salaries and benefits increased a stunning 0.6%.
That figure has sent the
Dow Jones Industrial Average
soaring more than 100 points and has rocketed the tech-driven
Nasdaq Composite Index
up more than 20. The bond market, of course, is fairly swooning with glee. The yield on the bellwether 30-year Treasury bond has fallen near the psychologically important 7% level, even dipping below it earlier in the session.
With the Dow just 2.8% or so short of its March 11 high, 7085.16, investors are wondering whether the good economic news means the so-called correction in large-cap stocks is drawing to a close. But market players are urging continued caution, citing the danger of reading too much into one of this data-stuffed week's earlier reports.
"I don't think it would indicate that it's over," one trader said. "I don't think we're changing our outlook as far as a tightening" at the
May 20 policy meeting.
Rao Chalasani, chief investment strategist at
in Chicago, said he was as surprised as anyone else on the Street by the ECI number. He had forecast a figure between 0.8% and 1%, figuring along with almost everyone else that benefits would post much more than a 0.1% increase. But Chalasani said the ECI, significant as it is, isn't enough by itself to signal a turning economic tide.
"If you look at the corporate profits, they certainly suggest that the economy is strong," Chalasani said. He said first-quarter profits are running 11% higher than in the first quarter of 1996.
Chalasani said a real decline in the long-bond yield to less than 7% "will have some ramification on whether the Fed will tighten or not. If the yield stays below 7%, I don't think they'll need to tighten again." But he said a true dip in the yield will take more signs of weakness in the week's reports yet to come, such as tomorrow's report on
real GDP growth
"One number, just the Employment Cost Index, is not going to make or break the bond market, especially when it's being questioned," Chalasani said.