Confidence that central bank policies will spur economic growth and a valuation call by Federal Reserve Chair Janet Yellen sent global equities rallying for the week, with benchmark indexes in the U.S. and Canada climbing to all-time highs.
About $380 billion was added to global equities during the week. FedEx Corp. jumped 5.6 percent as it predicted a pickup in economic growth. E*Trade Financial Corp. climbed 5.3 percent as the Nasdaq Composite Index recovered all its losses from a two-month selloff. Covidien Plc rose 25 percent amid a spate of cross-border deal activity.
The MSCI All-Country World Index jumped 1 percent for the five days, reaching a record close on June 19. The Standard & Poor’s 500 Index increased 1.4 percent to 1,962.87 and the Dow Jones Industrial Average gained 171.34 points, or 1 percent, to 16,947.08. Both gauges ended at records. The Nasdaq Composite added 1.3 percent to the highest level in 14 years. Canada’s S&P/TSX Index climbed 0.7 percent, closing at an all-time high on June 19, as energy and raw-material shares rallied.
“You have a bit of a sweet spot for stocks right now where you’re seeing accelerating growth numbers,” Frank Maeba, managing partner at Breton Hill Capital in Toronto, which oversees about $550 million. “Everything looks a bit better, and you still have an accommodative central bank. Things can probably extend a little higher.”
The S&P 500 climbed in each of the five days as the U.S. economy showed signs of recovering from winter and the Fed vowed to keep interest rates low. Yellen said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth.
Yellen emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation. She noted that stock prices aren’t outside historical norms.
The comments helped alleviate investor concerns after a June 17 report showed the cost of living in the U.S. rose more than forecast, reflecting broad-based gains that signal inflation will move closer to the Fed’s goal.
Other data during the week indicated that industrial production climbed more than forecast in May, while gauges of manufacturing in New York and Philadelphia topped estimates and jobless claims dropped. Investors will get further clues on the economy’s strength in the coming week, with reports due on home sales, gross domestic product and personal spending.
The Stoxx Europe 600 Index advanced 0.3 percent for the week, trading near the highest level since 2008. European Central Bank Vice President Vitor Constancio signaled on June 19 that large-scale asset purchases are the next step policy makers are prepared to take if the inflation outlook worsens. The comments came after ECB President Mario Draghi announced on June 5 new long-term refinancing operations and lowered interest and deposit rates for the euro area in an attempt to boost inflation.
“Both the ECB and the Fed have come out with supportive comments or things the market has interpreted as supportive,” Jonathan Golub, chief U.S. market strategist for Toronto-based RBC Capital Markets LLC, said in a phone interview. “If you look at both of those, by saying that they’re less concerned about inflation, that’s ultimately positive.”
The MSCI Asia Pacific Index advanced 0.4 percent for a sixth week of gains, the longest stretch of increases since August. The measure reached its highest level since June 2008 during the week.
A measure of U.S. stock volatility known as the VIX dropped 11 percent during the five days to 10.85. The index touched 10.61 on June 18, its lowest level since February 2007. The Chicago Board Options Exchange Volatility Index has retreated 49 percent from a 14-month high in February.
All 10 of the main S&P 500 industries rose for the week. Utilities and energy shares rallied the most, with gains of more than 2.7 percent. Chevron Corp. increased 4 percent for the best performance in the Dow.
Energy shares advanced as crude oil capped a second weekly gain amid escalating violence in Iraq. The U.S. said it will send military advisers to the country to help repel militants in OPEC’s second-biggest oil producer. Brent rallied 1.2 percent for the five days, touching a nine-month high.
Health-care companies climbed 2.1 percent as a group, rallying amid merger activity. Covidien surged 25 percent, the most in the S&P 500, as Medtronic Inc. agreed to buy the Dublin-based company for $42.9 billion in cash and stock. Medtronic, the second-largest maker of medical devices, rose 5.2 percent.
In a separate deal, Chicago-based AbbVie Inc. is considering raising its takeover bid for Shire Plc a fourth time after the European drugmaker rejected its latest offer for about $46.5 billion, said two people with knowledge of the matter. Shire surged 24 percent in London trading.
Cross-border deals are accelerating as U.S. companies seek lower taxes and ways to spend almost $2 trillion protected from U.S. taxes in cash abroad. Merck & Co. increased 1.2 percent, Eli Lilly & Co. jumped 5.3 percent and Amgen Inc. climbed 4.3 percent.
Williams Cos. climbed 22 percent after agreeing to buy control of Access Midstream Partners LP for $6 billion. The purchase would create one of the biggest U.S. transporters of fuel at a time of increased natural-gas exploration.
Netflix Inc., Tesla Motors Inc. and TripAdvisor Inc. increased at least 1.5 percent, and have rallied more than 18 percent in the past four weeks. All three had losses exceeding 23 percent during March and April as a contraction in economic growth during the first quarter and concern stocks are too expensive fueled a selloff of Internet and small-cap shares.
The Nasdaq Composite has surged 9.2 percent from its April low to regain a 14-year high. The Russell 2000 Index jumped 2.2 percent for the week, bringing it to within 1.7 percent of its record set in March.
FedEx jumped 5.6 percent as the company forecast an annual profit that topped some analysts’ projections. The operator of the world’s largest cargo airline is reaping the benefits of a 20-month push to reduce costs as the global economic recovery spurs an increase in shipping.
E*Trade and Charles Schwab Corp. increased more than 5.3 percent amid a June 17 Senate hearing on broker incentives. U.S. stock exchanges called for greater public disclosure or elimination of incentives and fees that lawmakers said favor the interests of high-speed traders over other investors.