Stocks staged a stunning turnaround Friday, transforming the latest inflation scare into a buying opportunity.
Some stock indexes ended lower, but all measures rebounded from a steep tumble after a surprisingly strong employment report reignited inflation fears, sending bonds plunging and interest rates spiraling.The Dow Jones industrial average rose 29.92 to 5,697.11, recovering from an 85-point plunge in the first half hour of trading.
"Once again, we bent but didn't break," said Alfred E. Goldman, vice president of A.G. Edwards & Sons Inc. of St. Louis.
Before the stock market opened, the Labor Department reported that payroll jobs surged by 348,000 last month, more than double what had been expected. It was the latest in a series of monthly employment readings that have jolted the bond market, adding to pressures that could push up wages and consumer spending.
More spending can create too much demand and rapid inflation, which hurts the value of fixed-income investments such as bonds. The prospect of higher inflation also heightened concerns the Federal Reserve will raise interest rates to slow the economy - a negative for corporate profits.
Within minutes of the report, the yield on the benchmark 30-year Treasury bond - a benchmark rate used to determine the interest charged on many kinds of loans - jumped over 7.05 percent, up from 6.9 percent late Thursday.
The yield eased slightly in the afternoon, ending at 7.03 percent, but stocks began to rally toward the end of the session as prices proved too enticing for a market conditioned by several recent bounce-backs from other sell-offs.
"The opening panic created an opportunity," said Goldman. "As bull markets always do, they surprise on the upside."
Analysts said investors were right to worry that the Fed would soon take aim at inflation by hiking interest rates.
"If you look at these (employment) numbers, it looks like a boom which eventually will invite the Federal Reserve to raise short-term interest rates to cool it off. And that could lead to a bust or a recession," said Hugh Johnson, chief investment officer at First Albany Corp.
"Every time there's a move up in interest rates, every investor asks whether they're at a level where the economy and earnings will suffer," he said.
But investors, concerned about continued earnings growth, apparently determined that "the economy's at least strong enough to tolerate one increase in short-term rates by the Fed and the increase in short-term rates that we've already seen," Johnson said.
Declining issues outnumbered advancers 8 to 3 on the New York Stock Exchange, rebounding from an early margin of more than 14-to-1. NYSE volume totaled 445.54 million shares at 4 p.m., down slightly from Thursday.
The NYSE's composite index fell 0.49 to 360.61, but the Standard & Poor's 500-stock index rose 0.28 to 673.31, rebounding from a loss of more than 101/2 points.
The Nasdaq composite index fell 2.76 to 1,229.76, rebounding from a loss of more than 25 points, and the American Stock Exchange's market value index fell 3.53 to 599.31, its first close below 600 since May 13.
Technology stocks, dogged by several cautionary statements from the industry in recent days, took the biggest hit early on, but snapped back decisively.
IBM rose 1/2 to 1013/4 after an early plunge of more than 5 points accented by a series of brokerage downgrades. On the Nasdaq, Intel rebounded from a loss of about 2 points, closing unchanged at 751/4
Some of the weakest groups included interest-rate sensitive issues such as utilities, whose high dividends are less attractive when bond rates rise, and banks, which see a smaller profit margin on their loans when interest rates are low.
Cyclical issues, meanwhile, which respond to a strong economy, led the session's rebound. Leading the Dow higher were United Technologies, up 21/4 at 1143/8, and Alcoa, up 13/4 at 595/8.
Overseas, Tokyo's Nikkei stock average fell 0.2 percent, Frankfurt's DAX index rose 0.2 percent and London's FT-SE 100 fell 1.4 percent.