Global stocks rallied, snapping three days of declines after valuations reached the cheapest levels since 2009, as investors speculated the Federal Reserve will act to spur the economy. Oil jumped while the dollar fell.
The MSCI All-Country World Index added 2.3 percent at 7:17 p.m. in New York, as weaker-than-anticipated U.S. economic data increased optimism for stimulus measures. The Standard & Poor’s 500 Index jumped 3.4 percent to 1,162.35, paring gains briefly after an earthquake shook New York and Washington. Oil rallied 1.2 percent. The Dollar Index fell 0.3 percent. The yen slid against the U.S. currency after Moody’s Investors Service cut Japan’s sovereign-credit rating. Gold sank the most since May.
The MSCI gauge of global equities is rebounding from the lowest level since September before central bankers meet this week in Jackson Hole, Wyoming. Last year, Fed Chairman Ben S. Bernanke’s hint of a second round of asset purchases, or quantitative easing, spurred a 28 percent jump in the S&P 500. Financial stocks in the S&P 500 rallied 3.2 percent, recovering from an earlier decline, after the Federal Deposit Insurance Corp.’s list of “problem” banks fell in the second quarter for the first time since 2006 as the cost for bad loans eased.
“The reason for the rebound today might be in the bad economic data that we saw earlier this morning,” Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which oversees about $355 billion, said in a telephone interview. “What investors are reading is that the Fed has got to do something.”
Optimism about more Fed stimulus grew after the Fed Bank of Richmond’s business activity index dropped to minus 10 in August, the weakest since June 2009. The monthly survey of producers in the region covering the Carolinas, Maryland, Virginia and West Virginia corroborated factory reports from Philadelphia and New York that pointed to weakness in the industry. Also, the Commerce Department said sales of new U.S. homes declined more than projected in July to the lowest level in five months.
“Speculation of another form of the ‘Bernanke Put’ is growing with each new data point that suggest the economy continues to weaken,” Miller Tabak Roberts Securities LLC strategist Adrian Miller wrote in a note to clients today. “We caution the market on getting ahead of itself as the cost/benefit analysis the Fed has used in the past in determining whether another QE program is warranted in not favorable at this point.”
Global Equity Rout
A four-week global equity rout has wiped about $8 trillion from companies’ market value as Europe’s sovereign debt-crisis and worsening economic reports in the U.S. raised concern the global economic recovery is faltering. The S&P 500 fell 16 percent from July 22 through the end of last week in its biggest four-week loss since March 2009. Companies trade at an average 11.3 times estimated earnings, near the lowest level in 2 1/2 years.
U.S. stocks are cheap after suffering the biggest losses since March 2009, said Byron Wien, a senior managing director at Blackstone Group LP, the world’s biggest private equity firm.
“You got the market down to 11 times earnings,” Wien said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “Usually it sells at around 15. That makes a number of stocks attractive here.”
The S&P 500’s rally, its biggest advance since Aug. 11, was paced by companies most-tied to the economy, with energy and technology shares climbing at least 3.9 percent. All 10 industries in the benchmark gauge advanced. The Morgan Stanley Cyclical Index gained 2.9 percent, breaking a five-day losing streak.
Bank of America, Goldman Sachs
Financial shares in the S&P 500 rose after dropping 1.3 percent earlier as the cost to protect debt issued by Bank of America Corp. surged to a record. Bank of America lost 1.9 percent, paring its decline from 6.4 percent. Goldman Sachs Group Inc. gained 0.3 percent after losing as much as 3.2 percent.
Financial institutions in the S&P 500 tumbled 25 percent in 2011 through yesterday, the most among 10 groups, amid speculation the government debt crisis in Europe will spur banking losses. The industry has the second-biggest weighting in the benchmark measure of U.S. shares at 14 percent. Goldman Sachs and Bank of America slumped 37 percent and 52 percent, respectively, the most since 2008, this year through yesterday.
Stocks briefly pared gains after the 5.8-magnitude earthquake in Virginia rattled Washington and New York. More than 66 million shares changed hands on U.S. exchanges at 1:55 p.m. New York time following the earthquake in Virginia, more than any minute since just after the market opened at 9:30 a.m.
Chinese Manufacturing Index
The Stoxx Europe 600 Index rose for a second day, climbing 0.8 percent, after a preliminary purchasing-managers index compiled by HSBC Holdings Plc and Markit Economics showed Chinese manufacturing may contract at a slower pace in August as the world’s second-biggest economy weathers slumping global confidence. The report helped ease concern that the economic slowdown is deepening.
UBS AG rose 2.1 percent after Switzerland’s biggest bank said it plans to cut 3,500 jobs to trim costs. Charter International Plc, a welding and automation-equipment maker, jumped 20 percent after saying it’s in talks with a potential bidder other than Melrose Plc.
The Stoxx 600 has still lost 18 percent this year, driving valuations down to 9.4 times estimated profits, near the lowest level since March 2009, according to data compiled by Bloomberg.
Treasury 10-year yields rose five basis points to 2.15 percent. The government sold $35 billion in two-year notes today at a record low yield of 0.22 percent. The securities are the first of the maturity to be sold after S&P on Aug. 5 downgraded the U.S. AAA long-term sovereign rating. The offering was the first of three note sales this week totaling $99 billion. The Treasury will sell $35 billion in five-year debt tomorrow and $29 billion of seven-year notes on Aug. 25.
The Dollar Index, which tracks the greenback against currencies including the euro, yen and pound, fell 0.3 percent, as optimism over possible Fed moves to boost the U.S. economy damped demand for safer assets. The New Zealand and Australian dollars led gains against the U.S. currency, rising 1.4 percent and 1.1 percent, respectively.
The euro climbed 0.6 percent versus the dollar, to $1.4444, maintaining gains after a report showed German investor confidence fell more than economists forecast. The yen weakened 0.1 percent to 76.73 per dollar after Moody’s lowered Japan’s grade by one step to Aa3, with a stable outlook.
Oil rallied for a second day, climbing 1.2 percent to settle at $85.44 in New York after an earlier decline of 1.2 percent, as equities advanced and the dollar weakened. Oil also increased as fighting continued in Libya, damping hopes the country is close to resuming crude exports. Rebels said they entered Libyan leader Muammar Qaddafi’s compound of Bab Al Aziziya in the capital, Tripoli, and raised their flag, Al Arabiya reported.
Gold dropped as much as 3.5 percent in after-hours electronic trading. The metal posted its first decline in seven sessions, as some investors sold the metal after signs of slowing growth spurred a rally to a record $1,917.90 an ounce. The relative-strength index of futures in New York has topped 70 since Aug. 8, a signal to some investors that prices were poised to decline. Bullion has jumped 14 percent in August.
S&P’s GSCI Index of 24 raw materials rose 1 percent. Copper climbed the most since Aug. 11, gaining 1 percent. Imports of refined copper by China, the world’s largest user, rose for a second month in July, customs data showed yesterday. Inbound shipments of scrap copper jumped 14 percent from a year earlier.
The Markit SovX Western Europe Index of credit-default swaps insuring the debt of 15 governments rose 2 basis points to 299. Greek government bonds slumped, with 10-year yields climbing to 17.43 percent, the highest level in a month, amid uncertainty over the details of a new loan package for the Mediterranean nation. Greece’s two-year note yield jumped 120 basis points to 39.61 percent, driving the difference with benchmark German securities to the most since at least 1998.
The MSCI Emerging Markets Index rallied 2 percent, after falling to a one-year low yesterday. China’s Shanghai Composite Index advanced 1.5 percent, Taiwan’s Taiex climbed 3.3 percent and South Korea’s Kospi jumped 3.9 percent.
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