U.S. stocks rallied with commodities and Treasuries as Federal Reserve Chairman Ben S. Bernanke said he wouldn’t rule out more stimulus to lower a jobless rate he described as a “grave concern.” The dollar weakened.
The Standard & Poor’s 500 Index added 0.5 percent to close at 1,406.58 and the Dow Jones Industrial Average climbed 90.13 points to 13,090.84 as both finished a third straight monthly gain. Oil extended its biggest monthly advance since October and gold capped its best since January. Ten-year Treasury yields slid seven basis points to 1.55 percent, an three-week low, and the Dollar Index lost 0.5 percent to 81.25, its lowest on a closing basis since May.
Bernanke’s 24-page speech at the Kansas City Fed’s symposium made the case for further monetary easing and concluded that the central bank’s non-traditional policy tools such as bond purchases have been effective in boosting growth and improving financial conditions. He said that declines in the unemployment rate would continue only if growth picks up above its longer term trend.
“It’s the strongest language on unemployment I remember Bernanke using,” said Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland. “That makes the next jobs report even more critical. If it deviates significantly from muddling along, they may well be forced to act.”
The Labor Department’s employment report for August is scheduled to be released on Sept. 7. Payrolls probably climbed by 125,000 in the month and the unemployment rate remained at 8.3 percent, according to the median economist prediction in a Bloomberg survey.
Commodity, technology, financial and industrial companies helped lead gains in the 10 main industry groups in the S&P 500 today. Intel Corp., American Express Co. and Microsoft Corp. rose more than 1.6 percent to lead the Dow’s gain.
The dollar weakened against 15 of 16 major peers, losing about 1 percent against the Swedish krona, Mexican peso and South African rand. The euro strengthened 0.6 percent to $1.2575 and rose to as much as $1.2638, the strongest level in almost two months.
Two-year Treasury yields decreased three basis points to 0.22 percent and 30-year rates tumbled seven basis points to 2.67 percent.
Bernanke left the door for a third round of quantitative easing “wide open” and the chairman’s remarks about unemployment signal the Fed is likely to act if the jobless rate increases even slightly, Alan Ruskin, Deutsche Bank AG’s global head of Group-of-10 currency strategy, said in a note to clients.
“We have seen no net improvement in the unemployment rate since January,” Bernanke told central bankers and economists in the audience, according to a text of his remarks released in Washington. “Unless the economy begins to grow more quickly than it has recently, the unemployment rate is likely to remain far above levels consistent with maximum employment for some time.”
Speaking two weeks before the next meeting of the Federal Open Market Committee, Bernanke said long periods of high unemployment produce “enormous suffering and waste of human talent” and also risk causing structural damage to the economy that could last for many years.
“He set the backdrop for them acting, saying things like ‘the labor market is a grave concern,’” said John Canally, an economist and investment strategist at LPL Financial Corp. in Boston. The firm oversees about $350 billion. “He didn’t say that the economy is seeing any sustainable or substantial improvement, so when you mix it all together, it’s still a matter of how and when they’re going to do it rather than if.”
Benchmark U.S. equity indexes marked a third straight monthly advance in August. The S&P 500 has advanced 12 percent this year as European leaders worked to tame the region’s debt crisis and the Fed pledged to act to safeguard the economic recovery if needed.
The S&P 500 last week climbed to its highest level on an intraday basis in more than four years, then failed to close at that milestone. The index has fluctuated near the 1,400 level for three weeks.
Trading has slowed toward the end of the U.S. summer as investors awaited the Fed’s gathering in Wyoming. Bernanke’s address in Jackson Hole in 2010 preceded a second round of quantitative easing, nicknamed QE2 on Wall Street.
Volume for exchange-listed stocks in the U.S. was below 4.5 billion shares for three days this week, the lowest levels excluding days surrounding holidays in Bloomberg data going back to 2008. About 5.4 billion shares changed hands today, 12 percent below the three-month average.
The Stoxx Europe 600 Index added 0.5 percent today. It declined 0.7 percent this week, trimming its third straight monthly advance to less than 1.9 percent. Hermes International SCA gained 2.3 percent today after the maker of Birkin and Kelly bags raised this year’s sales-growth target as first-half earnings beat estimates. Bankia SA climbed 6.3 percent. After markets closed in Europe, Spain’s rescue fund said it would inject capital into the lender immediately.
Spanish bonds tumbled, sending 10-year yields up 26 basis points to a two-week high of 6.86 percent, as the government bolstered the powers of the bank rescue fund to restructure troubled lenders and S&P lowered the Catalonia region’s credit rating to junk. Spain yesterday delayed making a decision on seeking European bailout funds until conditions of the aid are clear.
Oil advanced 2 percent to $96.47 a barrel in New York to cap a 9.6 percent rally for the month. Gold increased 1.8 percent to $1,687.60 an ounce as Bernanke’s remarks spurred demand for an inflation hedge. The precious metal increased 4.5 percent in August. The S&P GSCI Index of commodities jumped 1.2 percent as 18 of its 24 materials increased.
The MSCI Emerging Markets Index rose 0.4 percent, snapping a five-day slump and trimming this month’s drop to 0.4 percent. Benchmark gauges in Turkey, Poland, the Czech Republic and Thailand gained more than 1 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slipped 0.7 percent.