Global stocks rallied with Treasuries and European yields tumbled in August as investors bet central banks will continue to underpin global economies. Escalating violence in Ukraine sent the ruble plunging to a record low while gold advanced.
The MSCI All-Country World Index jumped 2 percent for the month and the Standard & Poor’s 500 Index surged 3.8 percent, giving both gauges the best performance since February. Ten-year Treasury yields dropped 21 basis points, the most since January, while rates on similar-maturity bonds from Italy to Spain and Germany touched record lows. The MSCI Emerging Markets Index capped its longest streak of monthly gains since 2005. Volatility eased despite global conflicts, as the VIX plunged 29 percent, the biggest drop in more than two years.
“The S&P and other indexes have ground higher this month in the face of all the global turmoil and macro issues that still exist,” Peter Tuz, who helps manage more than $450 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a phone interview. “It’s been driven by the strong results U.S. companies have achieved in the second quarter, and the positive economic data we’ve seen. It looks like global quantitative easing could last longer than expected.”
More than $1 trillion was added to the value of global equities in August, sending it to a record $66.2 trillion. The S&P 500 rebounded after slipping to a two-month low on Aug. 7, climbing to erase the 3.9 percent drop that began on July 24, as concern over crises from Ukraine to Iraq and Argentina eased.
The S&P 500 climbed above 2,000 for the first time on speculation the Federal Reserve will keep interest rates low even as the economy shows signs of strengthening. Minutes from the central bank’s July meeting indicated the Fed is committed to supporting the recovery, even as some policy makers signal a willingness to raise key rates sooner than anticipated. The Fed is on pace to wind down stimulatory bond purchases in October.
The economy expanded more than previously forecast in the second quarter, propelled by the biggest gain in business investment in more than two years, the Commerce Department reported.
“The U.S. economy seems to be continuing to churn out reasonable growth and earnings,” Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said in a phone interview. “The thought now is that the Fed isn’t going to do anything for a while and rates will stay low.”
The Stoxx 600 rallied 1.8 percent in August, the most in three months. Weaker economic data spurred speculation that European Central Bank President Mario Draghi will consider quantitative easing, which could involve broad-based asset purchases, and would signal benchmark interest rates are on hold for an extended period.
Draghi said in Jackson Hole, Wyoming, during the month that policy makers will use “all the available instruments needed to ensure price stability” and are “ready to adjust our policy stance further.” Policy makers are scheduled to hold their next rate-setting meeting on Sept. 4.
The euro weakened 1.9 percent against the dollar, reaching the lowest level since September. The Bloomberg Dollar Spot Index rose 0.7 percent in August.
The Bloomberg Global Developed Sovereign Bond Index (BGSV) advanced 0.5 percent in August and is up 4.7 percent this year. Yields on bonds of Spain, Italy, France and Germany all reached record lows in the month’s final week.
Treasuries gained as the collapse of rates in Europe sent investors reaching for higher yields. Ten-year securities returned 2.2 percent in August, the biggest advance since a 3.2 percent gain in January, according to Bank of America Merrill Lynch index data.
“It’s the perfect storm,” said Guy Haselmann, an interest-rate strategist at Bank of Nova Scotia in New York, one of 22 primary dealers that trade with the U.S. central bank. There are “elevated geopolitical risks. You have Europe showing no growth and disinflation, and the combination of those things is favorable to the bond market.”
The intensifying conflict in Ukraine pushed the ruble down almost 4 percent against the dollar. The Micex index of Russian stocks lost 3.2 percent over the past five trading sessions, trimming its August increase to 1.5 percent. Gold futures increased 0.4 percent for the month as investors sought haven assets.
Five months of unrest have sparked the worst standoff between Russia and its former Cold War foes in two decades and unleashed sanctions on both sides. The U.S. and Europe are threatening President Vladimir Putin with more sanctions after the North Atlantic Treaty Organization reported a surge of Russian troops and advanced equipment into the war zone.
“Right now people are willing to look past the geopolitical risk,” McQueen’s Schultz said. “Barring a major escalation, it doesn’t look like the market is too bothered by it.”
The CBOE Volatility Index (VIX), the U.S. derivative price benchmark also known as the VIX, plummeted 29 percent to 11.98 in August, the biggest monthly decline since October 2011. It reached 11.47 on Aug. 22, a one-month low.
The stock market has been experiencing the slowest trading in at least six years. Volume has been below 5 billion shares in each of the past nine sessions, the longest stretch in data compiled by Bloomberg going back to 2008.
U.S. stocks rallied amid mergers and better-than-forecast earnings. About 76 percent of S&P 500 companies that have reported results for the second quarter beat analysts’ estimates for profit, while 65 percent exceeded sales projections, according to data compiled by Bloomberg.
Home Depot Inc. helped retailers in the S&P 500 advance 8.3 percent as a group, as it surged 16 percent after reporting results that topped estimates and raising its profit forecast.
Monster Beverage Corp. rallied 38 percent after Coca-Cola Co. agreed to buy a 17 percent stake in the company for about $2.15 billion, increasing its exposure to the growing energy-drink market.
Shares of Apple Inc., which has the highest weighting in the Nasdaq 100, surpassed a 2012 record. Berkshire Hathaway Inc. Class A shares climbed above $200,000 for the first time.
Both the Nasdaq 100 and Nasdaq Composite Index (CCMP) finished the month trading at their highest levels since 2000. The Nasdaq Biotechnology Index jumped 10 percent to a record, completing a rebound after a 21 percent decline from February through April fueled by concern that earnings don’t justify their share prices.
The Bloomberg Commodity Index slid 1.1 percent. West Texas Intermediate crude oil decreased 2.3 percent for a second consecutive monthly loss.
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