Stocks See Best Monthly Gain Since ’09

The best month in stocks since 2009 pushed equities past bonds, commodities and the dollar for the first time in a year after European leaders took action to contain the debt crisis.

Share values rose by $4.2 trillion as the MSCI All-Country World Index jumped 11 percent on speculation the global economy will avoid a recession, according to data compiled by Bloomberg. The Standard & Poor’s GSCI Total Return Index of commodities climbed 9.8 percent. Bonds worldwide lost 0.1 percent, Bank of America Corp. data show. The Dollar Index fell 3 percent, the most since April.

Equities rebounded from five months of losses, the longest streak since 2008, after European leaders persuaded bondholders to take 50 percent losses on Greek debt and boosted a rescue fund to 1 trillion euros ($1.4 trillion). The U.S. economy grew at the fastest pace in a year during the third quarter as Americans increased spending and companies bought more machinery and software.

“It was a risk-on trade on the back of relief on two fronts,” Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion, said in a telephone interview. “First, a compromised outcome that at least satisfies concerns that Europe won’t face some type of massive event in the financial system. Second, U.S. data points suggesting that perhaps a recession wasn’t imminent.”

Credit Crisis

European leaders resolved differences over how to address the credit crisis that drove Greek, Italian and Spanish government bond yields to the highest levels versus German rates since the euro was created. Equities and commodities trimmed monthly gains yesterday amid concern Europe will struggle to raise financing for a bailout.

Stocks sank and the euro weakened today, while a surge in German bunds sent yields down the most on record, amid concern Europe’s bailout of Greece will unravel after Greek Prime Minister George Papandreou scheduled a vote on the plan. The dollar and U.S. Treasuries rallied.

The MSCI All-Country World Index fell 3.3 percent at 4:18 p.m. New York time as gauges in Italy, France and Germany plunged at least 5 percent. The Standard & Poor’s 500 Index lost 2.8 percent. German 10-year yields fell as much as 29 basis points to 1.73 percent. Rates on 10-year Italian and French debt touched euro-era records above German debt. The euro fell 1.1. Copper and oil paced losses in commodities after China’s manufacturing growth cooled.

Poised to Climb

Stocks are poised to climb in the next year, according to more than 10,000 analyst share-price estimates compiled by Bloomberg. The S&P 500 may increase 16 percent from yesterday’s close to 1,449.01, the forecasts show. Meeting the average projection for each stock would bring the gain since March 2009 to 114 percent, the biggest rally since May 2000.

Global equities rose from the lowest valuations in more than two years after the MSCI gauge slipped to 11.1 times reported income on Oct. 4. Earnings helped lift the index, with 74 percent of S&P 500 companies reporting third-quarter results that beat analysts’ forecasts, data compiled by Bloomberg show.

Profit for S&P 500 companies will climb 18 percent to a record $99.33 for 2011, according to analyst estimates compiled by Bloomberg. The S&P 500 is trading for 13.2 times reported earnings, compared with its average since 1954 of 16.4 times, according to data compiled by Bloomberg.

Best Since 1991

The S&P 500 rallied 11 percent in October, the best since 1991, snapping five months of losses. Gains began after it came within 1 percent of extending a drop from its April peak to 20 percent, the common definition of a bear market.

Stocks rallied along with metals and agricultural products after U.S. economic data improved. Consumer confidence climbed and the rate of growth in gross domestic product almost doubled in the third quarter from the prior period. The Citigroup Economic Surprise Index turned positive on Oct. 14 for the first time since April 29, indicating reports were beating projections in Bloomberg surveys by the most in six months.

Consumer confidence unexpectedly rose in October from the previous month, indicating the biggest part of the economy will help keep the U.S. recovery intact. Stock market gains and easing gasoline costs have brought relief to Americans at a time when the jobless rate is hovering above 9 percent and home prices continue to fall.

Energy and Metals

The S&P GSCI Index of 24 commodities returned 9.8 percent, the most since May 2009, led by energy and metals. While the measure advanced to a six-week high on Oct. 27, it still hasn’t erased the 12 percent plunge in September.

“Commodities were oversold,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. “The progress in Europe really was helpful for the commodity markets. The strength of the dollar abated, which was the safe haven when Europe was in trouble. Europe is the customer of China, and as such, if Europe would slow, implicitly you would have some issues in China.”

China’s central bank raised interest rates three times this year and ordered lenders to set aside a bigger portion of their deposits to curb inflation. The nation’s economy grew 9.1 percent in the third quarter, the slowest rate since 2009. The inflation rate may drop to 5.6 percent in October on slowing food price gains, Shenyin & Wanguo Securities Co. said last week. Growth in consumer prices slowed to 6.1 percent in September from a three-year high of 6.5 percent in July.

Demand May Improve

Crude oil trading in New York posted the biggest gain among commodities, jumping 17 percent, the most since May 2009, on signs that supplies are tightening and that demand may improve.

Prices touched a 12-week high of $94.65 a barrel on Oct. 25 as inventories decline. Oil stockpiles in the Organization for Economic Cooperation and Development fell 12.7 million barrels in September, according to preliminary estimates Oct. 12 from the Paris-based International Energy Agency.

“The supply-demand fundamentals look quite supportive,” said Katherine Spector, a commodities strategist with CIBC World Markets Corp. in New York. “You only need demand to grow incrementally to tighten the balance.”

Copper advanced 14 percent, the most this year. Chile, the world’s top producer, reported a 1.9 percent output drop for September from a year earlier, while supply was disrupted in Indonesia by a miners’ strike.

Corn, Silver

Corn climbed 9.2 percent on speculation demand for exports from the U.S., the world’s largest grower, would improve after prices dropped on Oct. 3 to the lowest this year. Silver rallied 14 percent last month, outpacing the 6.3 percent gain in gold.

Treasuries lost 0.8 percent, snapping three months of gains and posting the biggest decline since December, according to Bank of America data. High-yield, high-risk corporate bonds worldwide gained 6 percent, while investment-grade company debt globally appreciated 1.6 percent.

“The movement in fixed-income was much more moderate,” Andrew Milligan, who helps oversee $262 billion as Edinburgh- based head of global strategy at Standard Life Investments Ltd., said in a telephone interview yesterday. “The bond investors are taking a bit of a longer-term view. Yes, the euro-zone package has kicked the can down the road for a while. It answers some questions, but not all.”

Junk-Rated Debt

High-yield, or junk-rated debt, is ranked below Baa3 by Moody’s Investors Service and less than BBB- by S&P.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trade partners, fell 3 percent in October, snapping two months of gains. The dollar fell against 15 of its 16 major peers.

“The dollar is absolutely one of the arbiters of safe- haven buyers and risk,” Milligan said.

The euro climbed 3.5 percent in October against the dollar and jumped as much as 2.5 percent on Oct. 27, when European leaders reached their agreement on losses for Greek bondholders.

The yen lost 1.4 percent against the dollar. It plunged as much as 4.9 percent yesterday after Japan stepped in to foreign- exchange markets to weaken the currency for the third time this year after its gain to a postwar record threatened exporters. It had rallied to 75.35, the strongest level since World War II.

“The timing of the intervention took us by surprise, we were not expecting this to happen right away,” Jose Wynne, head of North America foreign-exchange research for Barclays Plc in New York, said in a telephone interview yesterday. “The central bank was taking the opportunity to punch the face of investors.”

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net

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