New York Market: Shares hold firm as bond yields jump

BOND yields jumped last week - something that is usually disastrous for stocks. Yet US stocks were little changed from the previous week, bolstered by a strong economy with little inflation.

Financial companies such as Chase Manhattan and American Express, usually among the first to fall when bonds tumble, actually managed to eke out gains.

Over the past two weeks, all growth-related economic indicators, including housing starts and consumer confidence, matched or exceeded analysts' expectations. Yet inflation, as measured by the gross domestic product price deflator, rose only 1 per cent, the smallest increase in 50 years. "Stocks are unfazed by (rising) bond yields because every piece of inflation news you see is good," said Gary Campbell, for Commerce Bank.

For the week, the Dow Jones Industrial Average declined 0.4 per cent, the Standard & Poor's 500 fell 0.1 per cent, and the Nasdaq rose 0.2 per cent.

Investors are still concerned that the Federal Reserve eventually may raise interest rates to cool the economy. Fed Chairman Alan Greenspan told Congress last week that while no signs of inflation were apparent, the central bank would be quick to raise interest rates if necessary. Last week alone, the yield on the 30-year Treasury bond rose to 5.58 per cent from 5.39 per cent. It was the worst month for bonds since 1980.

Investors will be watching this Friday's report on employment for signs that the economy is overheating, particularly the part on wage costs. Economists estimate that hourly earnings rose 0.3 per cent in February, down from a 0.5 per cent increase a month earlier. The jobless rate is expected to stay at 4.3 per cent.

Even if the Fed does raise interest rates to cool the economy, some investors don't think that will be bad for stocks. "There's such a tailwind on this economy that growing profits will outweigh the threat of rising borrowing costs," said Donald Coxe, at Harris Investment Management.

"What they're doing is making minor, on-course adjustments to keep the US economy in good shape," said Howard Kornblue, manager at Pilgrim America Capital. "It's still a positive environment for equities."

Financial companies proved the point this week, rising even as bond yields climbed. They could extend gains as they benefit from the disparity between high yields and low short-term rates.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there