The Standard & Poor’s 500 Index returned 5.2 percent in January in the strongest start to a year since 1997, leading global stocks higher and beating bonds, commodities and currencies.
The benchmark index for U.S. equities surpassed 1,500 during the month for the first time since December 2007 and the MSCI All-Country World Index of shares in 45 nations climbed 4.6 percent, including dividends. The S&P GSCI Total Return Index of 24 commodities added 4.4 percent, the biggest increase since August. The U.S. Dollar Index declined 0.7 percent. Bonds lost an average 0.7 percent as of Jan. 30, snapping a six-month rally, according to Bank of America Merrill Lynch’s Global Broad Market Index of 20,000 fixed-income securities.
Stock values rose by $2.6 trillion as better-than-estimated corporate profits, the end of a U.S. political logjam over spending cuts and tax increases, accelerating growth in China and signs of a recovery in Europe led investors away from the safest assets in search of higher returns. American equities may rise another 3 percent this year, while the dollar strengthens 1.9 percent and precious metals lead returns in commodities, according to Bloomberg surveys.
“There’s a lot of momentum for stocks even after such a good start to the year,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees $170 billion, said in a Jan. 29 phone interview. “Earnings are strong, the economies around the world are bottoming and valuations are attractive.”
Investors have poured $39 billion into equity mutual funds around the world this year, more than double the amount for the comparable period in 2012, according to data from Cambridge, Massachusetts-based research firm EPFR Global. They withdrew about $250 billion in the past four years, scarred by the 2008 financial crisis that wiped out $11 trillion in market value.
The last time U.S. stocks had a better start was in 1997, when the S&P 500 climbed 6.1 percent in January to end the year with a 31 percent gain, an increase it hasn’t matched since.
The U.S. benchmark stock index may rise to 1,543 by year-end, within 2 percent of its October 2007 record of 1,565.15, according to the average of 15 strategists surveyed by Bloomberg on Jan. 22. Citigroup Inc. predicts the gauge will advance to 1,615 and Bank of America Corp. sees a rally to 1,600.
The S&P 500 advanced 0.7 percent to 1,509.77 at 10:19 a.m. New York time today. The Stoxx Europe 600 Index added 0.6 percent.
The Dollar Index is forecast to climb to 80.7 by the end of 2013 from 79.2, according to the median estimate of 12 economists surveyed by Bloomberg. Precious metals may rise as much as 25 percent this year, as grains advance 18 percent and industrial metals gain 16 percent, according to a Bloomberg survey of 131 traders, investors and analysts in December.
Yields on 10-year U.S. government debt may climb to 2.20 percent by the end of the year, from 1.93 percent today, according to the median estimate of 77 economists surveyed by Bloomberg News. Should they reach that level, an investor would lose about $4,000 before tax on every $1 million held.
Of the 239 S&P 500 companies that have reported quarterly earnings so far this reporting season, 74 percent have beaten analysts’ profit estimates, according to data compiled by Bloomberg. Net income has grown by an average of 10 percent, compared with a 1.1 percent increase in the previous three months. Earnings at financial institutions have risen the most among 10 industries in the index, with a 62 percent jump.
Gains in the MSCI All-Country gauge were led by health-care and financial shares, which added more than 5.8 percent. Vernier, Switzerland-based Transocean Ltd. rallied 27 percent as billionaire investor Carl Icahn bought a stake in the offshore-rig contractor. Netflix Inc. jumped 78 percent as the Los Gatos, California-based online-video service posted an unexpected profit. Cupertino, California-based Apple Inc. retreated 14 percent, the most in four years, after the slowest earnings growth since 2003.
Investors are buying riskier assets after U.S. lawmakers passed a bill last year averting more than $600 billion in spending cuts and tax increases. Congress also agreed to suspend the $16.4 trillion debt ceiling until May 19 to prevent a default.
Stocks in the S&P 500 had fallen in the final week of 2012 as President Barack Obama battled with Congress over the so-called fiscal cliff, a term Federal Reserve Chairman Ben S. Bernanke coined when he spoke to the House Financial Services Committee almost a year ago.
“The market had been so much concerned about the fiscal cliff and all of a sudden, we look around and guess what: we didn’t go over the edge,” John Manley, who helps oversee about $212 billion as chief equity strategist for Wells Fargo Advantage Funds in New York, said in a Jan. 28 phone interview. “China is better, Europe seems to be finding its bottom and corporations are showing they can do more with less.”
China’s manufacturing is expanding at the fastest rate in two years, a private survey of companies showed on Jan. 24. European Central Bank President Mario Draghi said on Jan. 10 that the euro-area economy will slowly return to health in 2013 as the region’s bond markets stabilize.
European stocks capped their eighth month of gains, the longest streak since July 1997, with the Stoxx 600 returning 2.8 percent, including dividends, in January. The MSCI Asia-Pacific Index rose 3 percent. The Nikkei 225 Stock Average rose 7.2 percent, a sixth monthly advance, amid expectations Prime Minister Shinzo Abe’s new government will press the Bank of Japan to step up stimulus efforts.
The MSCI Emerging Markets Index of stocks gained 1.3 percent. The Shanghai Composite Index of domestic Chinese shares added 5.1 percent, climbing for a second month.
Cotton had the biggest advance among the 24 commodities tracked by the S&P’s GSCI, rallying 10 percent on ICE Futures U.S. in New York, after the Department of Agriculture cut its forecast for domestic production by 1.4 percent on Jan. 11 and boosted exports estimates.
West Texas Intermediate oil rose 6.2 percent to $97.49 a barrel, rebounding from last year’s 7.1 percent loss. Brent, the benchmark grade for more than half the world’s crude, climbed 4 percent to $115.55 as the Organization of Petroleum Exporting Countries cut output in December to the lowest level in more than a year. Gold retreated for a fourth straight month.
“Crude oil has been surprisingly strong, influenced by this high level of risk appetite, which is having a negative effect on gold,” said Filip Petersson, a commodities strategist at SEB AB in Stockholm.
The euro strengthened 2.9 percent to trade at more than $1.35 for the first time in more than a year, extending its rally versus the dollar to six months, the longest streak since 2003. It has gained almost 11 percent since July 26, when Draghi said he would do “whatever it takes” to save the 17-nation currency.
The yen weakened against all but one of its 16 most-traded peers tracked by Bloomberg following Abe’s pledge to tackle deflation.
South Africa’s rand lost 5.3 percent against the dollar, the worst performer in emerging markets, and touched its weakest level in almost four years as labor unrest rocked the country’s mining industry, slowing growth in Africa’s largest economy.
Bank of America Merrill Lynch’s Global Broad Market Index of bonds lost 0.7 percent as of Jan. 30, its first decline since June. The gauge, tracking securities with a market value of about $45 trillion, returned 5.7 percent last year. Average yields rose 15 basis points, or 0.15 percentage point, last month to 1.77 percent on Jan. 30, the highest since August.
A gauge of high-yield bonds returned 1.5 percent as of Jan. 30, the eighth month of the rally. Speculative-grade debt is rated below Baa3 by Moody’s Investors Service and BBB- by S&P.
U.S. Treasuries lost 1.1 percent after climbing 2.2 percent in 2012, the smallest yearly return since 2009.
Greek bonds were the best performers in January among the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, rising 12.9 percent. Ireland’s were second, gaining 2.2 percent, and Spain’s were third, returning 1.8.
Emerging-market dollar bonds tracked by JPMorgan Chase & Co. lost 1.1 percent, the first decline since May. Belize’s defaulted bonds rallied 35 percent after Prime Minister Dean Barrow said Jan. 21 that the government and investors reached an agreement to restructure the $544 million debt.