The biggest June rally for global stocks since 1999 is handing equity investors the year’s top returns, beating the dollar, bonds and commodities.
The MSCI All-Country World Index of shares in 45 nations climbed 6 percent over the first six months, led by the U.S., where $1.1 trillion was added to share values. The gain is about 1.1 times the increase in global bonds and 1.8 times more than the dollar after adjusting for daily swings, data compiled by Bloomberg show. Before the adjustment, fixed income climbed 2.8 percent, the U.S. currency added 1.7 percent and the S&P GSCI Total Return index of commodities sank 7.2 percent.
In a year when billionaire Wilbur Ross predicted the U.S. is on the “verge of a recession” and former Federal Reserve Chairman Alan Greenspan said the economy “looks very sluggish,” American companies anchored a rebound that pushed the MSCI gauge up 5 percent in June. Analysts say earnings in the Standard & Poor’s 500 Index will reach a record in 2012 amid forecasts for a 2.2 percent expansion in gross domestic product, the median prediction in a survey of 70 economists by Bloomberg.
“The U.S. is the best house in the neighborhood,” Burt White, who oversees $390 billion as chief investment officer at LPL Financial Corp. in Boston, said in a June 27 telephone interview. “We believe that the recovery here is self-sustainable. If you look outside of the United States, it’s a different story. Europe is still in the middle of their crisis. As concern rises, you begin to find a safer place.”
Bonds, stocks and the dollar gained simultaneously for the first time since 2005, showing investors expect most economies to sidestep Europe’s debt crisis and grow without spurring inflation, according to John Carey, who helps oversee about $220 billion at Pioneer Investments. Economists project worldwide GDP will expand 2.3 percent this year and 2.8 percent in 2013, according to data compiled by Bloomberg.
“People may be buying different assets because of confidence that the economy will continue expanding, even if at a moderate pace,” Carey said in a telephone interview from Boston on June 29. “Supporting that is the defensive move toward assets perceived to be safer in this very volatile world. You have both of those things going on and supporting the prices of stocks, bonds and the dollar.”
Bets on global central bank action to spur growth helped lift stocks. Chairman Ben S. Bernanke signaled the U.S. Fed will probably add to its record stimulus should the economy fail to make sufficient progress in creating jobs. The Fed extended its $400 billion Operation Twist program last month and will swap $267 billion in short-term securities with longer-term debt through the end of 2012 to stimulate growth.
June’s rally came after the MSCI index tumbled 11 percent over the previous two months. The gain since the start of the year has restored $2 billion to global equity prices, led by advances of 22 percent in the Philippine Stock Exchange Index, 9.5 percent in Mexico’s IPC Index and 16 percent in Denmark’s Copenhagen 20 Index.
The S&P 500, about 14 times the size of those countries’ combined equity markets with $12 trillion in value, has increased 9.5 percent this year and posted the largest first-quarter gain since 1998. The index is projected to rise 2.6 percent to 1,398 by the end of the year, according to the average from 13 Wall Street strategists tracked by Bloomberg.
Profits in the gauge are forecast to reach a record $103.74 a share in 2012 and climb 13 percent in 2013, according to analyst estimates compiled by Bloomberg.
The Stoxx Europe 600 Index, which fell 2.6 percent in the second quarter, is up 5.7 percent for the year. The equity benchmark may advance 4.8 percent to 263 by year-end, based on forecasts from seven strategists. The MSCI Asia Pacific Index has gained 4.5 percent in 2012, with dividends.
Investors sought refuge in the U.S. dollar during the second quarter as European leaders struggled to fix a debt crisis that threatens to force Greece out of the euro and is engulfing Spain. The currency fell against all its major counterparts last week after EU officials during a summit in Brussels dropped the requirement governments get preferred-creditor status on crisis loans to Spanish lenders.
Intercontinental Exchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, climbed 7.4 percent in the three months ending June 30. Economists’ estimate for U.S. GDP this year compares with 0.9 percent in Germany and projections for a 1.7 percent contraction in Spain, according to median estimates in surveys conducted by Bloomberg.
The Dollar Index’s gain was its best in the first half since surging 10.5 percent in 2010 as Europe’s debt crisis intensified. The gauge touched 83.5 on June 1, its highest level since 2010.
Strategists have boosted their year-end forecast for the index to 82.9 from 76.85 in early January, according to the median estimate of nine analysts surveyed by Bloomberg.
“The dollar didn’t start out the half year that well but it’s finishing the half year relatively strongly,” Alan Ruskin, global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG in New York, said June 27 in a telephone interview. “Growth is a little bit more resolute in the U.S.”
U.S. Treasuries, perceived as the safest of assets, gained 1.7 percent in the first half, led by a 4.1 percent return for 30-year bonds, Bank of America Merrill Lynch index data show. Yields on 10-year U.S. government debt have fallen to 1.65 after declining to a record 1.44 percent on June 1.
The interest rate is forecast to increase to 2.1 percent by the end of 2012, according to the median estimate of 65 strategists surveyed by Bloomberg.
Treasury yields are “being driven by central banks, by concerns in the currency market and the whole concept of, ‘do you have enough high-quality assets on your balance sheets?’” John Flahive, director of fixed income in Boston for BNY Mellon Wealth Management, which oversees $176 billion in private-client assets, said June 27 in a telephone interview.
The U.S. is one of only five major economies with credit-default swaps on their debt trading at less than 100 basis points, meaning they are viewed as almost risk free. A year ago, eight Group of 10 nations fit that category, data compiled by Bloomberg show.
The 2.8 percent increase in Bank of America Merrill Lynch’s Global Broad Market Index, which tracks more than 19,600 securities with a market value of $43 trillion, compares with 1.73 percent during the same period in 2011. The gauge is up 1.6 percent in dollar terms in 2012. The measure rallied 5.9 percent last year, its best performance since 2002.
Average yields have declined to 1.97 percent and fell as low as 1.87 percent on June 1 from 2.24 percent at the end of 2011 and 2.68 percent in May 2011.
Portuguese bonds were the best performers among the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, rising 28.4 percent. Hungary was second, with a 10.6 percent gain, followed by Ireland’s 9.9 percent return.
Investment-grade corporate debt rose 4.9 percent in the first half, while an index of high-yield bonds gained 7.1 percent. Speculative-grade debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at S&P.
Commodities slipped into a bear market on June 21, a day after the Federal Reserve held back from starting a third round of debt buying known as quantitative easing. The Standard & Poor’s GSCI Spot Index of 24 raw materials fell more than 20 percent from this year’s closing high on Feb. 24, the common definition of a bear market. The gauge was down 13 percent in the second quarter, the biggest decline since 2008.
Fifteen of the 24 raw materials in the S&P GSCI index declined in the first half of 2012, led by coffee, cotton and crude oil. Lead, sugar and nickel also dropped, while soybeans and wheat futures rose. In the second quarter, gold fell 4 percent after the dollar gained and the Fed refrained from further debt purchases.
“The slowing in global growth has a direct impact on commodities,” Walter ‘Bucky’ Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “The fact that the U.S. may need quantitative easing is itself an indication of slowing, because we wouldn’t otherwise be having that discussion.”
Investors in May pulled the most money in eight months from commodities, according to Barclays Plc. Outflows totaled $8.2 billion, the highest since a record $9.8 billion in September, Barclays analysts Suki Cooper, Kevin Norrish and Amrita Sen said in a report June 25.
Prices may recover in the third quarter as Europe is “muddling through” its debt crisis while China’s growth picks up, Barclays said in a separate report on June 21.
The S&P GSCI gauge rallied the most in more than three years on June 29 after European leaders agreed to ease repayment rules for emergency loans to Spanish banks and relax conditions on help for Italy.