U.S. stocks and commodities rallied amid better-than-estimated economic data and assurances from Federal Reserve officials that the central bank will continue to spur growth if needed. Italian and Spanish bonds rose as European finance chiefs agreed on how to handle failing banks.
The Standard & Poor’s 500 Index climbed 0.6 percent to 1,613.2 at 4 p.m. in New York and the Stoxx Europe 600 Index jumped 0.7 percent. The S&P GSCI gauge of 24 raw materials added 0.8 percent as oil surged 1.6 percent, while gold dipped to a 34-month low below $1,200 an ounce. Ten-year Treasury yields lost six basis points to 2.47 percent and the rate on Italy’s bonds dropped 14 basis points to 4.57 percent. The yen lost 0.6 percent to 98.33 per dollar and China’s seven-day repurchase rate fell for a fifth day.
U.S. consumer spending rebounded, pending home sales jumped to the highest level since 2006 and jobless claims declined last week, reports showed today. Federal Reserve Bank of New York President William C. Dudley said the central bank may prolong its asset-purchase program if the economy’s performance fails to meet the Fed’s forecasts.
“The data continues to show that the economy is growing at a very slow pace and that unemployment is improving at a very slow pace,” Oliver Pursche, co-manager of the GMG Defensive Beta Fund and president of Suffern, New York-based Gary Goldberg Financial Services, said in a phone interview. The firm manages about $650 million. “It means the likelihood of the Federal Reserve changing course on its monetary policy this year is very low and that further solidifies the case that last week’s correction was emotionally driven and an overreaction.”
Global equities have lost more than $3 trillion this month as the Fed said it may pare asset purchases and investors speculated that rising Chinese funding costs will curb growth.
The S&P 500’s three-day advance of 2.6 percent is its best rally since the beginning of the year. The index trimmed its June decline to 1.1 percent. The benchmark gauge of American stocks is up 2.8 percent in the second quarter and 13 percent in 2013.
All 10 of the main industry groups in the S&P 500 advanced today except for commodity producers. ConAgra Foods Inc. jumped 5.1 percent, the most since September, after quarterly earnings topped analysts’ estimates as acquisitions drove sales in its consumer foods unit. Hewlett-Packard Co., Boeing Co. and UnitedHealth Group Inc. climbed at least 2 percent to lead the Dow Jones Industrial Average up 114 points to 15,024.49.
An S&P index of homebuilders jumped 2.9 percent for a third day of gains, as 10 of its 11 members advanced. D.R. Horton Inc. and Lennar Corp. surged almost 4 percent and Home Depot Inc., the largest U.S. home-improvement retailer, added 0.8 percent. The index of pending home sales jumped 6.7 percent to 112.3, the highest since December 2006, figures from the National Association of Realtors showed.
Financial stocks in the S&P 500 jumped 1.3 percent as a group to lead the advance, with JPMorgan Chase & Co., Citigroup Inc. and American Express Co. climbing at least 1.2 percent each.
A Commerce Department report showed household purchases, which account for about 70 percent of the economy, rose 0.3 percent after a 0.3 percent decline the prior month that was the biggest since September 2009. Incomes advanced 0.5 percent, more than projected.
Jobless claims decreased by 9,000 to 346,000 in the week ended June 22 from a revised 355,000 the prior period, the Labor Department reported. The Bloomberg survey median called for 345,000 claims.
“If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook -- and this is what has happened in recent years -- I would expect that the asset purchases would continue at a higher pace for longer,” Dudley said in remarks prepared for delivery today in New York. He serves as vice chairman of the Federal Open Market Committee and has never dissented from a monetary policy decision.
Fed Governor Jerome Powell said that while the central bank’s asset purchases may be scaled back later this year if growth holds up, and any such trimming depends on economic data rather than the calendar. The Fed may wait “before moderating purchases or even increase them” if the economy weakens, while the program “may be moderated somewhat more quickly” should the economy strengthen faster than anticipated, Powell said today in the text of remarks prepared for delivery in Washington.
Investors should expect about $13 billion in selling of equities and buying of bonds as pension fund managers rebalance their portfolios at the of the second quarter, Ramon Verastegui, a derivatives strategist at Societe Generale SA in New York, wrote in a June 25 note. The S&P 500 has outperformed government bonds since the end of March with a total return of 2.7 percent through yesterday compared with 5.1 percent loss for 10-year Treasuries, according to data compiled by Bloomberg and Bank of America Merrill Lynch.
U.S.-listed bond mutual funds and exchange-traded funds saw record monthly redemptions of $61.7 billion through June 24, according to TrimTabs Investment Research, amid concern the Fed may scale back its unprecedented stimulus. Mutual funds that invest in U.S. stocks had $463 million in outflows in the five days that ended with the Fed’s policy statement on June 19, according to data from the Investment Company Institute released today. Redemptions since May 16 total $7.3 billion.
“The flows coming out of fixed income need to go somewhere,” Bill Schultz, chief investment officer who oversees about $1.1 billion at McQueen Ball & Associates in Bethlehem, Pennsylvania, said by phone. “Money market funds don’t offer anything, bonds are less attractive, so U.S. domestic equities on a relative scale look like the most attractive asset going forward.”
Volatility in Treasuries as measured by the Bank of America Merrill Lynch MOVE index fell for a second day yesterday. The measure dropped to 103.46 after reaching 110.98 on June 24, the highest since November 2011. It has averaged 62.25 this year.
Securities in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index lost 2 percent this quarter through yesterday, set for the worst performance since the three months through Dec. 31, 2010. While the average yield on the securities has climbed to 1.74 percent from 1.43 percent on March 31, it is still below the mean of 2.06 percent for the past five years.
The number of shares changing hands in Stoxx 600 companies was 4.6 percent less than the average of the past 30 days, according to data compiled by Bloomberg. The gauge has retreated 4.8 percent this month and 2.5 percent this quarter, trimming its annual increase to 2.4 percent.
Italian bonds rose for a second day as the nation sold 5 billion euros ($6.5 billion) of five- and 10-year securities, matching its maximum target. Spain’s 10-year yield dropped six basis points to 4.78 percent and the rate on similar-maturity German bunds slipped four basis points to 1.72 percent.
The MSCI Emerging Markets Index rose for a third day, adding 2 percent and paring this quarter’s loss to 11 percent and declines for the year to 13 percent. That compares with a quarterly gain of of 0.3 percent for the MSCI World Index of developed countries, which is 7.4 percent higher in 2013.
South Korea’s Kospi gauge jumped 2.9 percent, the most in nine months, after the current-account surplus widened to a record in May and the government raised its economic growth forecast. India’s Sensex advanced 1.8 percent and the rupee gained after the country’s current-account gap narrowed more than forecast.
China’s seven-day repo rate fell 55 basis points to 6.74 percent, according to a weighted average compiled by the National Interbank Funding Center. It reached a record 12.4 percent on June 20 and rose 193 basis points this month.
West Texas Intermediate oil rose 1.6 percent to $97.05 a barrel, leaving it little changed for the quarter. Nickel jumped 1.8 percent and lead climbed 1 percent to help lead the advance in commodities.
The slide in gold came as better-than-estimated economic data eroded the metal’s appeal as a store of value.
Gold futures for August delivery dropped 1.5 percent to $1,211.60 an ounce and touched $1,196.10, the lowest since August 2010. The metal headed for a record quarterly drop amid an equity rally and muted inflation.
The dollar was down 0.2 percent at $1.3043 per euro while the Dollar Index, a gauge of the currency against six major peers, was little changed after a six-day gain, its longest rally in 13 months.
The pound fell for a third day against the dollar, losing 0.4 percent to $1.5261, as a report showed disposable income in the U.K. plunged the most in 25 years in the first quarter.
The JPMorgan Global FX Volatility Index slipped to 11.18 percent after touching 11.96 percent on June 24, the highest since June 2012. The average for 2013 is 9.18 percent.