Global stocks beat all assets in the best quarter since the start of 2012 and commodities rose the most in a year after the Federal Reserve maintained economic stimulus and growth in China and Europe strengthened.
Equities rallied more than bonds, the dollar and metals as the MSCI All-Country World Index of shares in 45 markets climbed 8.1 percent including dividends in the past three months. European shares jumped the most since 2009. The Standard & Poor’s GSCI Total Return Index of 24 raw materials added 4.8 percent, while the Bloomberg Dollar Index fell 2.8 percent, the biggest drop in three years. Bonds of all types rose 0.8 percent as of Sept. 27, based on Bank of America Merrill Lynch’s Global Broad Market Index.
Equity values worldwide increased by $4.9 trillion during the quarter as the Fed unexpectedly refrained from reducing its monthly bond purchases and confidence in the euro area rose for a fifth month. Chinese manufacturing and exports rose, spurring gains in industrial metals and sending copper to the first quarterly advance in a year.
“The economy has stayed a little bit stronger than people had expected, and stocks represent relatively good value,” John Carey, a fund manager at Boston-based Pioneer Investment Management Inc., which manages about $200 billion, said by phone. “There’s a lack of compelling alternatives, with the bond market’s weakness due to concerns about rising rates.”
Equity benchmarks in Spain, Italy and France jumped more than 10 percent last quarter and the Hang Seng China Enterprises Index entered a bull market. The Standard & Poor’s 500 Index briefly surpassed 1,700 last month before closing at 1,681.55 yesterday, for a total return of 5.2 percent.
Global stocks pared gains in the last week of September, as a stalemate over the U.S. federal budget threatened the first government shutdown in 17 years. Democrats and Republicans also face a clash this month over the nation’s debt limit, which the Treasury Department has said will be reached on Oct. 17.
Investors poured $25 billion into stock mutual funds in July and August, while pulling $46.3 billion out of bond funds, according to data from the Washington-based Investment Company Institute.
The euro rallied 4 percent to $1.3527 last quarter, its biggest gain since the beginning of 2011. Ten-year Treasuries have climbed for the past three weeks, the longest winning streak since April. Gold dropped 4.9 percent in September, bringing its decline for the year to 21 percent.
“The fact that Europe is now out of recession and showing some degree of economic momentum is a positive for global risk assets,” said Jim Russell, a senior equity strategist at U.S. Bank Wealth Management, which manages about $112 billion.
The U.S. unemployment rate dropped to 7.3 percent in August, a more than four-year low, in part because workers left the labor force. Growing concern over the outlook for hiring and wages hurt sentiment among Americans last month as the Conference Board’s consumer confidence index registered the weakest reading since April.
“Conditions in the job market today are still far from what all of us would like to see,” Chairman Ben S. Bernanke said Sept. 18 after a meeting of the Federal Open Market Committee. He said there is no predetermined schedule for tapering the asset purchases that have helped push the S&P 500 up as much as 155 percent since March 2009.
The S&P 500 gained 3.1 percent in September after the Fed said its $85 billion-a-month bond-buying program will continue until it sees stronger evidence of economic expansion. The equity benchmark’s valuation increased to 16.12 times reported operating earnings from 15.69 at the beginning of the quarter.
Goldman Sachs Group Inc., Visa Inc. and Nike Inc. were added to the Dow Jones Industrial Average in September, replacing Bank of America Corp., Hewlett-Packard Co. and Alcoa Inc. in the biggest reshuffling of the gauge since April 2004. Goodyear Tire & Rubber Co., Netflix Inc. and Regeneron Pharmaceuticals Inc. rallied more than 39 percent in the quarter to lead gains in the S&P 500.
Wall Street strategists, who began 2013 predicting a 7.6 percent rise in the S&P 500 to 1,534 by year end, raised their forecasts as stocks climbed. The average estimate of 17 strategists surveyed by Bloomberg calls for a 2 percent increase to 1,715 in the next three months. The benchmark will reach 1,844 by the end of 2014, according to the average projection.
The MSCI Emerging Markets Index advanced 5.9 percent in the third quarter, the biggest gain in a year. Turkey’s benchmark equity gauge jumped 12 percent last month, leading 21 emerging markets tracked by Bloomberg, amid optimism the Fed’s decision to maintain stimulus will spur capital inflows the country needs to fund its current-account deficit.
“The Fed decided to play hero with zero tapering,” Wellian Wiranto, an investment strategist at the wealth-management unit of Barclays Plc, which oversees about $217 billion worldwide, said from Singapore. “If China’s growth remains on the stabilization path as we have seen, it will be a good thing for emerging markets into year-end.”
An index showed Chinese manufacturing expanded in September, according to a reading released yesterday by HSBC Holdings Plc and Markit Economics, and August exports topped analysts’ estimates. Rebounding Chinese demand means industrial metals may climb through the end of the year, according to Deutsche Bank AG.
The Standard & Poor’s GSCI Total Return Index of 24 raw materials rose 4.8 percent in the three months ended Sept. 30, the biggest quarterly gain in a year, on speculation China’s strengthening economy will bolster demand for energy and metals. Cocoa, silver and cattle led the advances.
“We started to see signs of not only a bottoming in Europe, but more important, a stronger Chinese economy,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview on Sept. 25. That “generally means higher commodity prices,” he said.
Bullion dropped in September as Russia backed a plan to rid Syria of chemical weapons, reducing the chance of a U.S. military strike. Prices will decline into 2014 as re-accelerating U.S. growth prompts the Fed to trim its monetary easing, Goldman Sachs Group Inc. said. Prices may fall 2.4 percent to $1,295 an ounce in the fourth quarter, according to the median estimate of 28 analysts.
The S&P GSCI Agricultural Total Return Index is down 3.4 percent since the end of June, the fourth straight quarterly decline. Corn lost 8.4 percent in September, the seventh monthly decline this year. U.S. farmers are projected to harvest a record crop this season after fields recovered from last year’s drought, the worst since the 1930s. Corn may rebound 13 percent to $5 a bushel in the fourth quarter, according to the median estimate of 14 analysts surveyed by Bloomberg.
Brent crude prices rose 6.1 percent last quarter after touching a six-month high of $117.34 a barrel on Aug. 28, amid concern that an attack on Syria would disrupt Middle East supplies. Brent has slid 3.9 percent since Sept. 14, when the U.S. and Russia reached a framework deal on Syria’s chemical weapons.
“Seventy percent of that jump is due to tensions in the Middle East,” said Gordon Kwan, head of regional oil and gas research at Nomura International Ltd. in Hong Kong. “The other 30 percent of the increase in oil prices is on expectations that the global economy will recover.”
Brent will average $107 a barrel this quarter, based on the median of 32 analyst estimates compiled by Bloomberg. West Texas Intermediate oil is forecast to average $103.
The Bloomberg Dollar Index, which tracks the dollar against 10 major peers, fell 2.8 percent in the quarter, the biggest drop since 2010. The index touched its lowest level since February last month after the Fed refrained from reducing asset purchases.
New Zealand’s dollar rallied 7.3 percent against the greenback, the biggest gain among its 31 most-traded peers.
The euro has climbed 0.5 percent in the past three months against nine developed market peers tracked by the Bloomberg Correlation Weighted Index. The region’s economy emerged from a record-long recession in the second quarter, according to data released in August. An index of European executive and consumer sentiment increased more than economists forecast in September, a report by the European Commission in Brussels showed.
The European currency is forecast to weaken to $1.3 by the end of 2013, according to the median estimate of 87 economists and strategists surveyed by Bloomberg. Japan’s yen fell 0.9 percent last quarter to 98.27 versus the U.S. currency and is forecast to weaken to 102, according to a separate survey.
Bonds of all types returned 0.8 percent in the quarter, the biggest gain since the end of 2012, according to Bank of America Merrill Lynch’s Global Broad Market Index, which tracks debt securities with a market value of about $44 trillion. The gauge has fallen 0.5 percent in 2013.
Average yields fell 11 basis points, or 0.11 percentage points, last month to 2.01 percent as of Sept. 27. High-yield bonds returned 3.6 percent last quarter, according to the Bloomberg Global High Yield Corporate Bond Index.
Treasuries gained 0.01 percent in the past three months as of Sept. 27, after falling for the prior four quarters. Yields on 10-year U.S. government debt may climb to 2.9 percent by the end of the year, from 2.6 percent, according to the median estimate of 74 economists surveyed by Bloomberg.
Greek bonds were the best performers among the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, rising 13 percent in the third quarter. New Zealand’s debt lost the most with a 1.3 percent decline.
“Investors are more comfortable with stocks,” Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $364 billion, said in a phone interview. “They’re observing the trailing returns of stocks and want a piece of the action. Simultaneously, for the first time in a long time, they’re feeling some pain for having held bonds.”