NEW YORK — Elated by the prospect of a capital gains tax cut and a deal to balance the federal budget, Wall Street on Friday closed out one of its best weeks in history with a broad stock market rally led by technology issues.
Even a report showing the lowest U.S. unemployment rate in 24 years--normally an inflationary signal--did not upset investors. The Dow Jones industrial average gained 94.72 points to end at 7,071.20--just 14 points shy of the all-time record set March 11. The Dow was up 332.33 points for the week--just under 5%--the biggest weekly point gain on record.
But the Nasdaq stock market--home of technology leaders Microsoft, Intel and Cisco Systems, among others--did even better, pulling out of its recent doldrums with a flourish. The Nasdaq composite index surged 34.83 points, or 2.7%, to 1,305.33 on Friday, bringing its gain for the week to 7.9%. Friday's rise was the index's biggest daily point gain ever--surpassing the 33.18-point jump July 17--and the gain for the week was the best in percentage terms in more than nine years.
On the New York Stock Exchange, advancing issues swamped decliners 2,144 to 508 on heavy volume of 501 million shares.
The market surge came despite Friday's report that the nation's jobless rate in April dropped below 5% for the first time since 1973. That sign of unexpected strength was balanced by a separate survey of businesses that showed modest payroll gains of 142,000 jobs in April and 139,000 in March. The Dow rose modestly in the morning on the job news, but then rocketed on word of a budget deal between President Clinton and congressional Republicans.
"The doubts about the budget deal and capital gains are gone, and that's very, very important," declared Peter Canelo, strategist for Dean Witter Reynolds.
Canelo said a capital gains tax cut is especially attractive to holders of Nasdaq stocks and may have played a major role in Friday's surge. Because Nasdaq issues are mostly growth-oriented companies that don't pay dividends, investors get most of their returns from price appreciation, creating taxable capital gains when they sell. A lower tax rate puts more money straight into investors' pockets.
Bonds weren't left out of Wall Street's party, either, having their best week in nine months. The yield on the benchmark 30-year Treasury bond sank to an eight-week low of 6.88% from 6.92% Thursday, after initially rising in reaction to the April jobs report.
Shorter-term bonds also fared well for the week, underlining investors' feeling that the Federal Reserve Board may see no need to keep squeezing rates upward in an effort to slow the economy.
Still, opinion is mixed about whether the central bank at its May 20 meeting will decide to boost its key short-term rate by another 0.25 percentage point, to 5.75%, as an anti-inflation insurance policy. But the consensus among Fed watchers seem to be that it won't need to do much more than that.
The Fed raised the rate to 5.5% from 5.25% on March 25. That helped trigger a decline of nearly 10% in the Dow, and even deeper drops among smaller stocks.
Although the markets have reacted skittishly to strong economic news in recent months, fearing further Fed rate hikes, investors seemed to like just about everything they heard on the economy this week.
"These numbers are clearly indicative of a slower economy in the second quarter, strange as that may seem when you look at the unemployment rate," said economist Martin Regalia of the U.S. Chamber of Commerce.
Among Friday's highlights:
* Tech stocks set the pace. Intel climbed 3 7/8 to 157 5/8; Motorola jumped 3 1/8 to 60 1/8; and Cisco Systems gained 3 7/8 to 57 1/4.
Among other networking stocks, Tellabs jumped 4 1/8 to 45 1/8, 3Com leapt 3 3/8 to 34 3/8 and Ascend Communications climbed 3 to 49 7/8. Other chip stocks posting big gains were Linear Technology, up 3 3/4 to 54 5/8, LSI Logic, up 1 7/8 to 41 5/8, and Applied Materials, up 3 1/8 to 57 5/8, setting a 52-week high.
The Dow's biggest gainers were DuPont, up 4 1/8 to 107 3/8; GE, up 3 3/8 to 113 1/8; and Caterpillar, up 2 5/8 to 93 3/8.
Investors even found their way to many of the depressed mid- and small-capitalization stocks. The Russell 2,000 index, a measure of small-cap issues that has been languishing since late January, shot up 2.4% to 353.98.
Market Roundup, D4
Times wire services contributed to this report.
* JOBLESS REPORT
Unemployment hits a 24-year low. A1
* BUDGET AGREEMENT
Clinton, Congress strike a deal to balance the budget. A1