Blue chips lead rally de­spite ris­ing yields

Con­sumer con­fi­dence and takeover deals spur the Dow to a fresh record. S&P stops just short of its 2000 high.

Los Angeles Times - - Business - By Tom Petruno

Stocks climbed Fri­day, leav­ing the Stan­dard & Poor’s 500 in­dex just shy of its record high reached in 2000, as takeover ac­tiv­ity and a sur­pris­ing in­crease in con­sumer con­fi­dence kept the bulls in charge on Wall Street.

But a jump in long-term Trea­sury bond yields raised some cau­tion flags. And al­though blue-chip stocks re­main on a hot streak, smaller is­sues have been strug­gling.

The Dow Jones in­dus­trial av­er­age rose 79.81 points, or 0.6%, to an all-time high of 13,556.53, its 24th record close this year.

The S&P 500 added 10 points, or 0.7%, to 1,522.75 — a mere 0.3% be­low the in­dex’s zenith of 1,527.46 on March 24, 2000, at the height of that era’s bull mar­ket.

Wall Street’s surge since midMarch has been pow­ered by bet­ter-than-ex­pected first-quar­ter earn­ings, a rash of takeovers and faith that the U.S. econ­omy, while slow­ing, won’t fall apart.

The rally also is feed­ing on it­self as side­lined in­vestors give in to the mar­ket’s mo­men­tum, an­a­lysts say.

“I think in­vestors have a sense that they might get left be­hind” if they don’t get aboard, said Andy Brooks, a trader at T. Rowe Price Group in Bal­ti­more.

The Dow, which rose 1.7% for the week, is up 8.8% year to date. The S&P 500 is up 7.4% this year af­ter a 1.1% ad­vance this week.

Takeover deals have un­der­pinned the mar­ket be­cause the bids sug­gest there is de­cent value in cur­rent share prices, an­a­lysts say.

On Fri­day, Mi­crosoft agreed to buy on­line ad­ver­tis­ing-ser­vices firm AQuan­tive for about $6 bil­lion in cash, or $66.50 a share. AQuan­tive soared $27.92, or 78%, to $63.79. Mi­crosoft slipped 15 cents to $30.83.

Ya­hoo rose $1.18 to $29.75 on re­newed spec­u­la­tion that Mi­crosoft might make a bid for the In­ter­net por­tal.

Gen­eral Elec­tric gained 43 cents to $36.96 on re­ports that it planned to sell its plas­tics di­vi­sion to a Saudi Ara­bian in­dus­trial gi­ant for about $11 bil­lion.

In­vestors also were en­cour­aged by the Reuters/Univer­sity of Michi­gan con­sumer con­fi­dence re­port for May. The pre­lim­i­nary read­ing on the con­fi­dence in­dex was 88.7, up from 87.1 in April.

Ris­ing con­fi­dence, de­spite higher gaso­line prices and weak­ness in home prices, re­in­forces op­ti­mism about the econ­omy, said Marc Pado, U.S. mar­ket strate­gist at bro­ker­age Can­tor Fitzger­ald. In­vestors have faith that most con­sumers “are go­ing to pay their mort­gages, and then they’re go­ing to go shop­ping,” Pado said.

But good news for the econ­omy is bad news for the Trea­sury bond mar­ket. Some bond in­vestors have been hop­ing to see more weak­ness in the econ­omy, which could boost the pos­si­bil­ity of in­ter­est rate cuts by the Fed­eral Re­serve in the sec­ond half.

Those hopes may be evap­o­rat­ing: The 10-year T-note yield rose to 4.8% on Fri­day, up from 4.75% on Thurs­day and the high­est in more than three months. The yield has jumped from 4.49% on March 7.

James Sarni, a prin­ci­pal at money man­ager Pay­den & Rygel in L.A., said he be­lieved that the econ­omy was in no dan­ger of fall­ing into re­ces­sion this year, and that in­ter­est rates were likely to end the year near cur­rent lev­els.

Higher bond yields may be weigh­ing on real es­tate in­vest­ment trust shares, which have tum­bled for five ses­sions. A Bloomberg in­dex of 131 REITs fell 1.2% on Fri­day and 6.2% for the week.

REIT stocks ap­peal to many in­vestors for their div­i­dend pay­ments. Ris­ing bond yields com­pete with those div­i­dends.

Small-com­pany stocks also have weak­ened re­cently. The Rus­sell 2,000 in­dex of smaller shares rose 1% on Fri­day but was down 0.7% for the week af­ter los­ing 0.4% the pre­vi­ous week.

The Nas­daq com­pos­ite in­dex, which in­cludes many smaller shares, slipped 0.2% for the week, al­though it was up 19.07 points, or 0.8%, to 2,558.45 on Fri­day.

The mo­men­tum of big-name stocks may be drain­ing money away from smaller is­sues, Pado and other an­a­lysts said.

Among Fri­day’s mar­ket high­lights:

en­ergy stocks hit record highs on ex­pec­ta­tions that oil prices will re­main el­e­vated. Near-term crude fu­tures in New York rose 8 cents to $64.94 a bar­rel. The price rose 4.1% for the week. Exxon Mo­bil ad­vanced $1.46, or 1.8%, to $83.26, Chevron rose $1.39 to $82.85 and Apache ral­lied $1.45 to $77.79.

In­tuit jumped $3.84, or 14%, to $31.56 af­ter the soft­ware firm re­ported quar­terly earn­ings that beat an­a­lysts’ es­ti­mates.

Trump En­ter­tain­ment Re­sorts soared $2.73, or 21%, to $15.80. The casino and ho­tel com­pany said would-be suit­ors had shown in­ter­est in the firm, al­though it didn’t name names.

99 Cents Only Stores shot up $1.39, or 10%, to $14.64 af­ter the Com­merce-based re­tailer posted a 31% jump in its fis­cal third-quar­ter earn­ings. The re­port had been de­layed by stock­op­tion ac­count­ing re­views.

In­tel added 47 cents to a 52week high of $22.70. A Mer­rill Lynch an­a­lyst up­graded the stock to “buy” from “neu­tral.”

Record highs were set in the Cana­dian, Mex­i­can and Brazil­ian stock mar­kets, adding to their re­cent gains.

tom.petruno@la­times.com

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