Stocks Best Start Since ’94 Tops Commodities on U.S. Rebound

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Photographer: Andrew Harrer/Bloomberg

Grapefruit at the Indian River Exchange Packers Inc. processing facility in Vero Beach, Florida, on Jan. 18, 2012.

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Photographer: Andrew Harrer/Bloomberg

Grapefruit at the Indian River Exchange Packers Inc. processing facility in Vero Beach, Florida, on Jan. 18, 2012. Close

Grapefruit at the Indian River Exchange Packers Inc. processing facility in Vero Beach, Florida, on Jan. 18, 2012.

Photographer: Victor J. Blue/ Bloomberg

Silver gained 19 percent, the best start to a year in almost three decades. Close

Silver gained 19 percent, the best start to a year in almost three decades.

Photographer: Qilai Shen/Bloomberg

Pedestrians walk near the Huangpu River with the Lujiazui Financial District in the distance in Shanghai, China. Reports showing American unemployment and Chinese inflation declined, while German investor confidence jumped, pushed up equities as the U.S. Federal Reserve pledged to keep interest rates near zero percent through 2014. Close

Pedestrians walk near the Huangpu River with the Lujiazui Financial District in the distance in Shanghai, China.... Read More

Photographer: Joshua Roberts/Bloomberg

Ben S. Bernanke, chairman of the Federal Reserve, said that the option of further large-scale bond purchases is still “on the table.” Close

Ben S. Bernanke, chairman of the Federal Reserve, said that the option of further large-scale bond purchases is still “on the table.”

Equities around the world are off to the best start in 18 years, topping gains in commodities and handing investors January’s best returns, as U.S. economic growth shows signs of accelerating and European leaders move closer to a solution on the region’s debt crisis.

The MSCI All-Country World Index rose 5.8 percent including dividends as banks and mining companies rallied 9.3 percent or more, according to data compiled by Bloomberg. The Standard & Poor’s GSCI Total Return Index of metals, fuels and agricultural products added 2.2 percent, the most since October. Global bonds climbed 0.6 percent and the U.S. dollar fell 1.1 percent.

Almost $3 trillion has been added to stock values and European shares ended a five-month bear market as economists lifted forecasts for U.S. gross domestic product. Reports showing American unemployment and Chinese inflation declined, while German investor confidence jumped, pushed up equities as the U.S. Federal Reserve pledged to keep interest rates near zero percent through 2014.

“People expected things to be much worse,” David Goerz, chief investment officer at Highmark Capital Management Inc., said in a telephone interview from San Francisco. His firm oversees $17 billion. “The positive economic surprises changed investors’ mindset about the probabilities of the U.S. tipping into a recession. Furthermore, you saw earnings come in generally better than expected.”

Best January

January’s appreciation in the MSCI All-Country gauge was the most since it climbed 6.5 percent at the start of 1994. The S&P 500 rose 4.4 percent for the best January since it rose 6.1 percent in 1997, according to data compiled by Bloomberg. (SPX) The Stoxx Europe 600 Index added 4 percent after gains in insurers and chemical producers pushed the benchmark gauge for European equities up as much as 20 percent from its September low. The MSCI Asia-Pacific Index rallied 8 percent, advancing for a second month.

Stocks advanced today, with the All-Country Index climbing 1.2 percent at 4:15 p.m. New York time, amid signs that global manufacturing is strengthening.

Companies most-dependent on economic growth led the gains. Gauges of commodity, financial and technology shares in the S&P 500 (SPXL1) rose more than 7.5 percent. Alcoa Inc. (AA), the largest U.S. aluminum producer, and Microsoft Corp. (MSFT), the biggest software maker, surged more than 13 percent. Bank of America Corp. (BAC) soared 28 percent. The Morgan Stanley Cyclical Index (CYC) jumped 11 percent, the most since October.

Rising Earnings

The Citigroup Economic Surprise Index (CESIUSD) for the U.S., a gauge of how much reports are exceeding or missing economists’ estimates in Bloomberg surveys, rose to a 10-month high on Jan. 6. The U.S economy is forecast to grow 2.3 percent in 2012, according to the median projection in a survey of economists, up from the estimate of 2.1 percent in December.

Earnings beat projections at 67 percent of the 198 companies in the S&P 500 that reported quarterly results since Jan. 9, according to data compiled by Bloomberg. Analysts forecast profits in the S&P 500 will reach a record $104.58 per share this year after increasing almost 125 percent since the end of 2009, the fastest expansion in a quarter century, the data show.

Full-year earnings have topped estimates at 58 percent of the Stoxx 600 companies that reported so far this year and 59 percent of MSCI All-Country World Index members.

S&P 500 High

The S&P 500 climbed to a six-month high of 1,326.05 on Jan. 25 after Fed Chairman Ben S. Bernanke, speaking at a news conference after the statements, said that the option of further large-scale bond purchases is still “on the table.”

European stocks had their best monthly start to a year since 1998 as most countries in the region agreed to tighter budget controls and Greece made progress on debt-restructuring talks. European Central Bank President Mario Draghi says his strategy for battling Europe’s debt crisis is starting to work. Asked if the ECB is open to cutting rates further, Draghi said it depends on the inflation outlook. He indicated rates will remain low for an extended period.

“Three things have been behind the recovery in risk assets: progress on a fiscal compact in Europe, better-than- expected economic data and more accommodative central-bank policies,” Mike Ryan, the New York-based chief investment strategist at UBS Wealth Management Americas, said in a phone interview. His firm oversees $715 billion. “While the first two have eased concerns over a euro-zone crisis and global recession, it is the last that will determine the duration and magnitude of further moves.”

Orange Juice

The S&P GSCI (SPGSCITR) Total Return gauge of 24 commodities gained 2.2 percent in January, erasing last year’s 1.2 percent decline. Orange juice futures soared 24 percent after the Food and Drug Administration said it was delaying imports to conduct tests for a banned fungicide. Silver gained 19 percent, the best start to a year in almost three decades.

Commodities slid last year and money managers cut wagers on rising prices on concern that Europe’s debt crisis and slower Chinese growth will curb demand for raw materials.

“We’ve had a good start across the commodities universe,” said Colin O’Shea, head of commodities in London at Hermes Investment Management Ltd., which has about $2 billion in raw materials. “We haven’t seen any evidence of a hard landing in China.”

Open Interest Climbs

Commodity investments are likely to rebound in 2012 after the smallest inflows since 2002 last year, Barclays Capital said in a report Jan. 26. Assets under management for the industry were $399 billion at the end of 2011, the bank estimates.

The open interest for 24 commodities climbed 8.3 percent in January, the biggest increase since 2009, after falling the most since 2008 last year, data compiled by Bloomberg show.

Natural gas slumped 16 percent as warm winter weather in the Northern Hemisphere in January curbed demand for heating and supplies increased. Inventories totaled 3.098 trillion cubic feet in the week ended Jan. 20, 21 percent above year-earlier supplies, the Energy Department said.

“It’s been a lot more vicious to the downside than most people thought,” James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania, said in a telephone interview. “You’ve had this combination of supply continuing to be pedal to the metal,” he said. “On the demand side, because of partly a little bit of weakness in the economy combined with the climate in the U.S. this winter so far, you kind of had a perfect storm.”

‘Core of the Rally’

The ECB’s unlimited three-year loans to banks spurred investor optimism that the region’s debt crisis could be contained. The central bank in December lent firms an unprecedented 489 billion euros ($637 billion) as financial institutions face $765 billion of maturing debt.

The loans were “certainly at the core of the rally and people fed off the relief,” said Noel Hebert, a credit strategist at Mitsubishi UFJ Securities USA Inc. in New York. “There was a little bit of performance chasing as the month progressed. Everything is driven by sentiment and it starts to feed on itself.”

The Dollar Index (DXY) tracking the U.S. currency against six peers fell 1.1 percent as the dollar slumped against all 16 major counterparts in January.

Fixed-income securities worldwide returned 0.6 percent, including reinvested interest, through Jan. 30, a second month of gains, Bank of America Merrill Lynch indexes show.

Treasuries Gain

Spanish government bonds gained 2.4 percent, Belgium’s returned 2.5 percent and Ireland’s increased 6.9 percent, the data show. Debt issued by Goldman Sachs Group Inc. returned 4.6 percent and that of Bank of America Corp. appreciated 7.9 percent.

Treasuries gained 0.3 percent as investors sought higher yielding assets. The debt erased declines of as much as 0.8 percent. The yield on the five-year U.S. government note fell to a record low of 0.698 percent as Bernanke said Jan. 25 that the central bank is considering additional asset purchases to boost economic growth.

“A lot of that has happened in just the last few days,” Hebert said. “People were surprised by the extent of the bias toward lower rates by the Fed.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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