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U.S. Stocks, Dollar Rise While Gold Falls on Economy Data

Thyssenkrupp AG
ThyssenKrupp AG gained 1.9 percent after a report that Germany’s largest steelmaker will sell some businesses. Photogrqapher: Krisztian Bocsi/Bloomberg

U.S. stocks rose, sending the Standard & Poor’s 500 Index to within seven points of a record, and the dollar gained as data showed a strengthening economy with inflation running below Federal Reserve targets. Gold retreated with oil.

The S&P 500 rose 0.5 percent at 4 p.m. in New York, capping a 3.8 percent rally since Aug. 7. Apple Inc. gained 1.4 percent to a record $100.53. The MSCI Emerging Markets Index climbed 0.7 percent to a three-year high. The yield on 10-year Treasury notes was little changed at 2.40 percent. The dollar jumped to the highest in nine months versus the euro. Gold dropped 0.2 percent to settle at $1,296.70 and U.S. oil slid to a seven-month low.

Housing starts in the U.S. reached the highest level in eight months, adding to evidence the U.S. economy is gaining traction, while the cost of living rose in July at the slowest pace in five months. Retailers from Home Depot Inc. to TJX Cos. reported results that topped estimates. Diplomatic efforts to end the conflict in eastern Ukraine intensified, while the U.S. said it will continue “limited” airstrikes against Islamic State militants in Iraq.

“As long as we see relatively benign inflation and decent but not explosive growth, we’re in a perfect environment,” Tim Rudderow, president and chief investment officer at Newtown, Pennsylvania-based Mount Lucas Management Corp, said via phone. He helps oversee $1.5 billion. “Today’s numbers were solid but not spectacular, and that’s perfect in an environment where really robust economic growth would not be positive.”

Geopolitics, Stimulus

The S&P 500 fell as much as 3.9 percent from its record reached July 24 amid growing concern over global conflicts from Ukraine to Gaza and Iraq, while data showing strong economic growth and hiring stoked speculation that the Fed may be forced to raise rates sooner than investors anticipated.

Signs last week of a slowing global economy eased concerns about higher borrowing costs, sending the benchmark index up 1.2 percent. Three rounds of Fed stimulus and better-than-estimated corporate earnings have pushed the S&P 500 higher by as much as 194 percent from its bear-market low on March 2009. The gauge has not had a decline of 10 percent in almost three years.

The Nasdaq Composite Index advanced 0.4 percent today for a fifth day of gains and the highest close since March 31, 2000. Apple surged 1.4 percent, a fifth straight advance that left the world’s most valuable technology company up 25 percent this year.

The Dow Jones Internet Composite Index closed at the highest since March 21. The gauage had tumbled more nearly 20 percent from a March high when investors sold off the best performers during the five-year bull market amid concern valuations had become too expensive.

Equity Valuations

The S&P 500 is trading at 17.8 times the reported earnings of its companies, near the highest level since 2010. The gauge is trading again above its average price for the past 50 days, after having plunged below it on July 31. The Dow Jones Industrial Average gained 0.5 percent today to closed above its 50-day average for the first time this month.

“Valuations are getting a little on the higher range compared on a short-term basis,” Diane Garnick, chief executive officer of New York-based Clear Alternatives LLC, said in a phone interview. “People tend to compare to only what they remember, so as a result, people are absolutely sensitive to higher valuations. If we had this level in 1998 nobody would notice.”

Data today indicated home construction rebounded in July and the cost of living rose at a slower pace. An improving job market and cheaper borrowing costs are helping revive residential real estate and boost corporate sales.

Homebuilders, Retailers

An S&P index of homebuilders rallied 2.6 percent as all 11 members advanced, while better-than-forecast results from Home Depot Inc., Dick’s Sporting Goods Inc. and TJX Cos. signaled that some retailers are coping with a slump in consumer spending.

Home Depot jumped 5.5 percent to a record after the largest U.S. home-improvement retailer raised its forecast for the year. TJX, the discount apparel company that owns T.J. Maxx and Marshalls, rallied 8.7 percent after boosting its earnings forecast. Dick’s added 1.6 percent.

As inflation continues to run below the Fed’s target, it gives the central bank room to keep interest rates low well after the projected end of its bond-buying program in October.

“The recovery remains on track, but we’re not moving forward at a burning-hot pace,” said Laura Rosner, a U.S. economist at BNP Paribas in New York, who accurately forecast the increase in consumer prices. “The Fed has the luxury really to keep policy very accommodative and keep fostering economic growth and labor market improvement.”

Jackson Hole

The Fed remains on pace to wind down its monthly bond purchases in October, while Chair Janet Yellen has said officials will keep its benchmark interest rate low for a “considerable time” after that.

The Fed will release the minutes of its last gathering tomorrow, before central bankers meet in Jackson Hole, Wyoming. Yellen and European Central Bank President Mario Draghi will be among the speakers at the annual symposium on monetary policy.

In Europe, data showed U.K. inflation cooled more than economists forecast, giving the Bank of England room to keep its key rate at a record low. Officials are trying to balance a strengthening recovery against subdued earnings and inflation that’s below the 2 percent target as they debate when to begin exiting stimulus.

Accommodative Policies

“We are unlikely to get huge upside surprises in inflation in the near term,” said Jorge Garayo, a fixed-income strategist at Societe Generale SA in London. “It looks like central banks around the world, including the Fed, can afford to keep accommodative policies for a bit longer. They are unlikely to change their rhetoric on this front.”

Ten-year gilt rates slid three basis points to 2.40 percent, while German 10-year yields lost one basis point to 1 percent after climbing six basis points yesterday. The rate dropped to a record 0.951 percent on Aug. 15. Spain’s 10-year yield dropped two basis points to 2.44 percent, having climbed five basis points yesterday.

The Stoxx Europe 600 Index rose 0.6 percent today, extending its rebound from an Aug. 8 low to 3.3 percent. The gauge jumped 1.2 percent yesterday.

The MSCI Emerging Markets Index climbed 0.7 percent to the highest since August 2011. Russia’s Micex rose 0.9 percent to a one-month high and an eighth straight gain, the longest streak since September.

Ukraine, Oil

European leaders are pushing to halt the conflict that’s fractured Ukraine since Russia annexed Crimea in March. The war, which Ukraine and its allies say is being fueled by President Vladimir Putin’s support for the insurgents, has led to sanctions that have hurt trade and threatened to send Russia’s $2 trillion economy into a recession. Russia denies it’s involved.

Brent for October settlement dropped to $101.56 a barrel in London, the lowest close since June 25, 2013. Oil tumbled yesterday as Kurdish and Iraqi forces regained control of Iraq’s largest dam, stalling an advance by militants.

West Texas Intermediate oil futures declined 2 percent to $94.48 a barrel in New York, the lowset settlement since Jan. 17.

The dollar strengthened 0.3 percent to $1.3319 per euro, touching the lowest level since Nov. 7. It added 0.3 percent to 102.91 yen.

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