Ten-year Treasury yields reached the highest level since March as retail sales unexpectedly rose, while the Standard & Poor’s 500 Index was little changed at a record level. The dollar rallied and oil fell for a third day.
Ten-year rates rose two basis points to 1.92 percent at 4 p.m. in New York. The S&P 500 (SPX) gained less than 0.01 percent to 1,633.7 to reach a record for the seventh time in eight days. The dollar strengthened against all 16 major peers except the Brazilian real. The yen fell 0.2 percent to 101.86 a dollar after weakening beyond 102 for the first time since 2008. Italian 10-year bonds fell, with yields climbing nine basis points to 3.98 percent, as the government sold 8 billion euros ($10.4 billion) of debt. Oil retreated as much as 1.6 percent while crops rallied.
The unexpected 0.1 percent gain in U.S. retail sales added to optimism that central-bank efforts to spur economic growth are working. Chinese data showed fixed-asset investment unexpectedly decelerated while industrial output trailed estimates and crude-oil processing reached the lowest level in eight months. Group of Seven policy makers said after meeting in the U.K that they examined Japan’s stimulus strategy and that they will monitor its impact on currencies.
“It’s the wave of short-term positive economic sentiment that’s continuing here,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “We’re likely to see some value buying as the 10-year comes in the mid-1.90 percent area, 1.94 percent is where buying is likely to step in.”
U.S. 10-year benchmark yields rose for a third day as European policy makers expressed a willingness to consider more ways to spur growth following weekend G7 talks. A report May 17 is forecast to show consumer sentiment in May climbed to the highest level this year.
Thirty-year bonds also fell, sending yields up three basis points to 3.13 percent, the highest since March 26 on a closing basis. The Dollar Index, a gauge of the currency against six major peers, rose 0.2 percent to 83.27, near the highest level since August, among bets the Federal Reserve will taper its bond purchases.
The Fed is buying $85 billion of Treasury and mortgage debt each month to support the economy by putting downward pressure on borrowing costs. The central bank said after a policy meeting on May 1 it will keep buying bonds “until the outlook for the labor market has improved substantially.” It also left unchanged a statement saying it plans to hold its target interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.
The S&P 500 advanced 1.2 percent last week and is up almost 15 percent this year. The increase in retail sales followed a 0.5 percent drop in March, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3 percent drop.
Alcoa Inc., DuPont Co. and Intel Corp. dropped at least 1.7 percent to lead declines in the Dow Jones Industrial Average, while Pfizer Inc. and JPMorgan Chase & Co. rose more than 1.4 percent for the biggest gains.
Yum! Brands Inc. fell 2.1 percent after the owner of the KFC and Pizza Hut dining chains reported a slump in April sales in China. Theravance Inc. rose 18 percent after Elan Corp. agreed to pay $1 billion for a share in royalties on new drugs.
Oppenheimer & Co. increased its year-end forecast for the S&P 500 to 1,730 and raised its estimate for earnings-per-share to $109, saying concerns about the U.S. economy will be “addressed and offset by positive economic data and corporate developments,” chief equity strategist John Stoltzfus wrote in a note to clients. Oppenheimer, which now has the second-most bullish forecast among 17 strategist estimates compiled by Bloomberg, had previously had a year-end forecast of 1,585 and EPS of $108.
Returns from the U.S. equity bull market that started four years ago are matching those from the last half of the 1990s even as valuations are 28 percent lower.
The S&P 500 has gained 26.2 percent annually including dividends since March 2009, the same as during the last 50 months of the technology bubble, according to data compiled by Bloomberg. Shares in the index now trade at 18.6 times annual profit, below the average 25.7 multiple in the 1990s rally led by Internet companies.
For bulls, the valuations show stocks will keep rising after the S&P 500 returned 164 percent as individuals scarred by the worst financial meltdown since the Great Depression return to equities. Bears say the price-earnings ratios mean investors lack confidence in the economy and corporate profit growth. They also note that the last time returns were this high, the bubble popped and more than $5 trillion was erased from the value of U.S. stocks, according to data from the World Bank.
“The market has risen faster than we expected in 2013 but we still forecast considerable upside to the S&P 500 during the next few years,” Goldman Sachs Group Inc. strategists led by David Kostin in New York wrote in a research note. While “multiple valuation frameworks indicate S&P 500 currently trades at or above fair value,” they wrote, “under the right circumstances, low real bond yields and improving U.S. economic growth could also justify significantly higher valuations.”
The Stoxx Europe 600 Index retreated 0.2 percent from the highest level since June 2008, with trading volume 16 percent less than the 30-day average. Commerzbank AG slid 4.7 percent after Handelsblatt said Germany’s second-biggest lender will sell new shares this week. Standard Chartered Plc dropped 1.9 percent as Carson Block, the short seller who runs Muddy Waters LLC, said he’s betting against the bank’s debt.
Lonmin Plc rallied 2.6 percent as the third-largest platinum producer returned to profit in the fiscal first half after sales increased.
The Stoxx 600 has surged 8.9 percent this year and last week closed at the highest level in almost five years.
“We’ve been thinking about a correction for a while,” Joost van Leenders, who helps oversee $657 billion as a strategist at BNP Paribas Investment Partners in Amsterdam, said by phone today. “So much of the market is driven by liquidity rather than economies. And we haven’t seen it.”
The MSCI Emerging Markets Index fell for a third day, dropping 0.8 percent. The Hang Seng China Enterprises Index of mainland companies slid 2.1 percent and the Shanghai Composite Index (SHCOMP) lost 0.2 percent. India’s Sensex sank 2.1 percent after a 10 percent rally from this year’s low on April 9 sent the gauge to the highest level since January and a report showed the trade deficit widened.
Pakistan’s KSE 100 Index jumped 1.7 percent to a record as unofficial election results showed a party led by former Prime Minister Nawaz Sharif winning the most seats in parliament.
The S&P GSCI (SPGSCI) gauge of 24 raw materials retreated 0.2 percent as gains in agricultural commodities were offset by losses in energy. Gold slipped 0.2 percent to $1,434.30 an ounce, the third consecutive decline.
Hedge funds increased bets on lower gold prices after investors pulled a record $20.8 billion from bullion funds this year while BlackRock Inc., the world’s biggest money manager, said it’s still bullish.
Speculators held 67,374 so-called short contracts on May 7, 6.4 percent more than a week earlier, U.S. Commodity Futures Trading Commission data show. The net-long position dropped 10 percent to 49,260 futures and options. Net-bullish wagers across 18 U.S.-traded raw materials climbed 5.8 percent to 582,265, with gains for cocoa, cotton and hogs.
West Texas Intermediate crude slid for a third day, dropping 0.9 percent to $95.17 a barrel after OPEC boosted output to the highest level in five months. The International Energy Agency, an adviser to 28 oil-consuming nations, will release forecasts for supply and demand through to 2018 in its Medium-Term Oil Market Report tomorrow.
Corn rose more than 3 percent, the most in two weeks, on speculation that persistent wet weather in parts of the Midwest will delay planting and curb yield potential of the biggest U.S. crop. Soybeans and wheat also climbed.
About 36 percent of the Midwest was dry enough for corn planting during the weekend after rain last week, and unusually cold temperatures kept soils muddy, T-Storm Weather LLC said in a report today. More rain beginning May 16 will add to sowing delays, the forecaster said. Corn was planted on about 12 percent of the intended acreage on May 5, the slowest since 1984, the government said.
Italy’s two-year yield rose eight basis points to 1.36 percent. Italy sold 3.5 billion euros of 2016 bonds with investors bidding for 1.34 times the amount offered, down from 1.40 times last month. The yield on 10-year German bunds fell two basis points to 1.36 percent.
The shekel weakened 1.3 percent against the dollar as Israel’s central bank cut its benchmark rate 25 basis points to 1.5 percent.
Australia’s dollar weakened for a sixth day, the longest losing streak in almost a year, as Treasurer Wayne Swan is forecast to project a fifth and sixth year of budget deficits tomorrow. The so-called Aussie fell as much as 0.8 percent to 99.41 earlier, the weakest since June 14.
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