Stocks Rally With Treasuries, Gold as Fed Resists Taper

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Newly molded bars of gold are arranged for a photograph inside the gold refinery unit at Kama Schachter Jewelry Pvt. Ltd. in Mumbai.

U.S. stocks surged, sending the Standard & Poor’s 500 Index to a record, while the dollar slid and Treasuries and gold rallied as the Federal Reserve unexpectedly refrained from reducing its monetary stimulus.

The S&P 500 (SPX) added 1.2 percent to 1,725.52 at 4 p.m. in New York, its biggest gain since Aug. 1, after dropping as much as 0.3 percent before the Fed decision. The Bloomberg U.S. Dollar Index sank 1.1 percent for its biggest slide in two months, while the pound reached an eight-month high versus the American currency. The yield on 10-year U.S. Treasuries dropped 16 basis points to 2.69 percent as the note jumped the most since 2011. Gold rose more than 4 percent oil surged 2.5 percent.

The Federal Open Market Committee said after a two-day meeting that it wants to see more more evidence that economic progress will be sustained before adjusting the pace of its $85 billion in monthly purchases of Treasury and mortgage debt. While “downside risks” to the outlook have diminished, “ tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement,” the central bank said.

“Everyone was a little stupefied,” Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank, which oversees $170 billion, said by phone. “It’s great to own stocks when we’re at these great levels. When money’s going to continue to be free for a while, it all plays into the valuations.”

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Economists Predictions

A total of 7.4 billion U.S. shares changed hands today, the most since June 28. Volume surged after the Fed’s announcement. About 552 million shares traded on all exchanges in the 10 minutes after 2 p.m., compared with 113 million in the preceding 10 minutes, according to data compiled by Bloomberg.

Economists had forecast the FOMC would dial down monthly Treasury purchases by $5 billion, to $40 billion, while maintaining its buying of mortgage-backed securities at $40 billion, according to a Bloomberg News survey.

“There is no fixed calendar schedule, I really have to emphasize that,” Bernanke said at a press conference after the statement. “If the data confirm our basic outlook” for growth and the labor market, “then we could begin later this year.”

Most Federal Reserve policy makers expect the first increase in the nation’s benchmark lending rate to occur in 2015. The federal funds rate target will be 2 percent at the end of 2016, according to the median of estimates by five governors on the Fed’s board and 12 reserve bank presidents. That rate compares with their median estimate of 4 percent for where the rate should be at a time of full employment and stable prices.

The Fed’s stimulus has helped the S&P 500 rally more than 155 percent from its March 2009 low. Speculation over the future of quantitative easing has whipsawed global asset prices since May, when Chairman Ben S. Bernanke first signaled cuts may start in 2013. The S&P 500 tumbled 5.8 percent from a record on May 21 through June 24. It rebounded 8.7 percent to close at a record month, then slumped as much as 4.6 percent before rebounding again and climbing within five points of the record yesterday.

Market Movers

Ten-year Treasury yields have increased from a record low close of 1.39 percent in July 2012. The rate is down from a more-than two-year high of 3.005 percent on Sept. 6. (USGG10YR)

An S&P index of 11 U.S. homebuilding stocks rallied 6 percent after declining almost 1.4 percent before the Fed statement, with Ryland Group Inc. and KB Home leading gains. Housing starts rose 0.9 percent to a 891,000 annual rate, following the prior month’s 883,000 pace that was weaker than previously estimated. The median estimate of 83 economists surveyed by Bloomberg called for 917,000. Permits dropped 3.8 percent.

Utility stocks, which offer 4 percent of their price in dividends for the second-biggest payout among 10 groups, jumped 3 percent as a group today as the drop in bond yields reduced competition to dividends. Gauges of raw-material, technology and industrial shares also climbed at least 1.3 percent as all 10 of the main industries in the S&P 500 advanced.

FedEx Earnings

FedEx Corp. (FDX) rallied 5 percent after reporting earnings that beat analysts’ estimates, bolstered by demand for ground shipping and lower maintenance expenses for new planes at the world’s largest cargo airline. Dollar Tree Inc. gained 3.6 percent after adopting a $2 billion buyback program. Adobe Systems Inc. rallied 9.2 percent, the most in three years, and reached a record as the largest maker of graphic-design tools said it amassed more than 1 million customers for its online services.

WellPoint Inc. lost 4.4 percent and HealthNet fell 0.9 percent. JPMorgan Chase & Co. analyst Justin Lake said the two companies would be most affected by any delay in the start of open enrollment in new health-care exchanges mandated by the Affordable Care Act. UnitedHealth Group Inc. lost 1.7 percent.

Europe, Emerging

The Stoxx Europe 600 Index climbed 0.4 percent, recovering most of yesterday’s 0.5 percent decline. European markets closed before the release of the Fed statement. Zodiac Aerospace SA (ZC), the world’s largest maker of airline seats, rallied 5.7 percent in Paris trading after full-year sales increased and Bank of America Corp. upgraded its recommendation on the shares.

Among emerging markets, Brazil’s Ibovespa rallied 2.6 percent to the highest level since May. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong decreased 0.6 percent while the Shanghai Composite Index added 0.3 percent. India’s S&P BSE Sensex jumped 0.8 percent and Russia’s Micex decreased 0.6 percent. Malaysia’s ringgit strengthened 0.5 percent versus dollar.

WTI oil jumped 2.5 percent, the most in three weeks, to $108.07 a barrel, extending earlier gains triggered after the U.S. Energy Information Administration said stockpiles fell 4.37 million barrels to 355.6 million barrels last week. Inventories were forecast to decline 1.2 million barrels, according to the median of 11 analyst estimates in a Bloomberg survey before publication of the inventory report.

Gold, Pound

Gold for immediate delivery surged 4.1 percent to $1,364.35 an ounce after earlier falling as much as 1.4 percent.

The pound gained 1.4 percent to $1.6121 after minutes of the Bank of England’s last meeting showed policy makers voted unanimously to keep policy unchanged this month as an improving economic outlook prompted agreement that no more stimulus was needed. The 10-year gilt yield rose seven basis points to 3.00 percent.

Spain’s 10-year bonds outperformed similar-maturity German debt, reducing the extra yield investors demand to hold the securities to as little as 2.39 percentage points, the least since July 2011.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Nick Taborek in New York at ntaborek@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

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