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Stocks gain on encouraging news about the economy
NEW YORK (AP) — Better news on jobs and consumer spending pushed stocks higher Thursday.
The Dow Jones industrial average and the Standard & Poor’s 500 index jumped, putting the stock market on track for its third advance in as many days. Bond yields fell for a second day, easing worries that a sudden spike in interest rates could hurt the economy.
Consumer spending rose 0.3 percent last month as incomes increased at the fastest pace in three months, the government reported. The number of Americans seeking unemployment benefits fell 9,000 to 346,000 last week. The report added to evidence that the job market is improving modestly.
The stock market has rallied since Tuesday as investors took advantage of lower prices after a sell-off last week. The plunge came after Federal Reserve Chairman Ben S. Bernanke said the central bank could cut back on its stimulus later this year and possibly end it next year, if the economy continued to improve.
The Fed is buying $85 billion of bonds every month to hold down long-term interest rates and encourage borrowing and spending. The Fed’s stimulus has underpinned a stock market rally that started in March 2009 by encouraging investors to put money into risky assets.
“What’s driving that market up is that people are realizing that they are in a ‘win-win’ situation,” said Rick Robinson, a regional chief investment officer at Wells Fargo Private Bank. “If you have good economic data that should be good for stocks, if you have poor economic data … that means the Fed will probably have its (stimulus) longer.”
The Dow Jones was up 103 points, or 0.7 percent, to 15,013 as of 2:08 p.m. EDT.
The S&P 500 index climbed 10 points, or 0.7 percent, to 1,614.
All 10 industry groups in the S&P 500 rose, led by financial stocks.
In a sign that investors once again were more confident in holding riskier assets, the Russell 2000 index of small-company stocks rose 14 points, or 1.4 percent, to 977, twice as much as the rest of the market.
The yield on the 10-year Treasury note fell to 2.48 percent from 2.54 percent late Wednesday. The yield climbed as high 2.66 percent on Monday, the highest since August 2011. The rate has surged since May 3, when it touched its low for the year of 1.63 percent. Concern that the Fed is poised to start pulling back on its stimulus prompted investors to sell bonds, pushing the yield higher.
Investors who have added bonds to their portfolios at the expense of stocks should consider reducing their fixed income holdings because yields are likely to rise further, said Doug Cote, chief market strategist at ING Investment Management. Bonds rallied from 2007 to 2012, years that encompassed the financial crisis and the Great Recession. The yield on the 10-year Treasury note fell to a record low of 1.39 percent in July last year.
“For the first time in five years, equities are the safest asset class,” Mr. Cote said.
Higher yields on Treasury bonds translate into higher borrowing costs on many kinds of loans including home mortgages. Average U.S. rates on fixed mortgages surged this week to their highest levels in two years. Mortgage buyer Freddie Mac said Thursday that the average rate on the 30-year loan jumped to 4.46 percent. That’s up from 3.93 percent last week and the highest since July 2011.
Higher rates have yet to slow the housing market. Homebuilders got a lift from a report Thursday suggesting that the housing recovery remains intact. The number of people who signed contracts to buy U.S. homes jumped in May to the highest level in more than six years.
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