U.S. Stock Rally Fizzles as Dollar Tumbles, Treasuries Advance

December Fed Liftoff: How High Will They Go?
  • Focus on gradual tightening lifts emerging stocks, currencies
  • S&P 500 fluctuates after rallying most in four weeks

The biggest rally in U.S. stocks in four weeks fizzled as UnitedHealth Group Inc.’s profit warning rattled the health-care sector and oil’s descent sank energy producers. The Federal Reserve’s signal that any rate increase would be gradual bolstered bonds and sent the dollar to its biggest slump in a month.

The Standard & Poor’s 500 Index slipped as UnitedHealth plunged the most in four years and Chevron Corp. led losses in oil stocks. Treasuries rose and the dollar fell as investors showed few signs of unease after the U.S. central bank signaled it’s likely to raise interest rates next month. Emerging markets rallied, as the focus turned to the Fed’s plan to take a cautious approach to subsequent tightening.

Emerging markets have tumbled this year and global equities have swung between gains and losses on concern the first U.S. rate increase since 2006 would interrupt the American recovery. Now investors are gaining confidence: economic reports since the Fed’s October meeting have been encouraging, and the Fed signaled a shallow path for any increases next year as traders continue to anticipate a move in December.

“The market has grown comfortable with the idea of a dovish hike,” said Mark Dowding, a London-based money manager at BlueBay Asset Management LLP which has $60 billion under management. “The market has sent out the message that they are comfortable with the idea of a gradual approach to policy tightening, and the Fed is endorsing that view and communicating to the market they are going to give it what it wants.”

Stocks

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The MSCI All-Country World Index advanced 0.7 percent at 4 p.m. in New York. The Standard & Poor’s 500 Index added 0.1 percent after its best rally in four weeks. It’s up 2.9 percent so far this week. Thursday saw the gauge move in its tightest intraday range since May 22.

UnitedHealth slumped 5.7 percent after cutting its earnings estimate and saying it may pull out of the Obamacare insurance exchange market. Chesapeake Energy Corp. sank 10 percent and energy producers tumbled 1.3 percent as oil approached $40 a barrel.

The S&P 500 has surged almost 12 percent from its August trough, including an 8.3 percent surge in October. The gauge fell as much as 4.1 percent after Fed Chair Janet Yellen on Nov. 4 reminded investors that raising rates in December was a “live possibility.” It’s since trimmed that to 1.4 percent, and closed within 2.3 percent of its record.

“The market probably needs to move sideways here for a while,” David Spika, global investment strategist for GuideStone Capital Management, said by phone. “The way we rebounded from the correction was very rapid and very quick. There are more reasons to go down than up.”

Data Thursday showed initial jobless claims in the U.S. were around four-decade lows last week. An index of leading economic indicators for October rose, according to economists surveyed by Bloomberg before the report.

The Stoxx Europe 600 climbed to a three-month high. The index has rebounded 12 percent since a low in September. Miners, among those most hurt in the summer rout amid a slowdown in China, were up 0.6 percent as a group today, after rallying as much as 2.9 percent earlier.

Bonds

Treasuries rose, pushing 30-year yields toward a two-week low, as traders focused on the probable pace of tightening. Longer-dated maturities are rebounding after yields touched three-month highs following a Nov. 6 report showing surging U.S. job growth.

Benchmark 10-year Treasury yields slipped three basis points to 2.24 percent, after ending Wednesday little changed. Germany’s 10-year bund yield also fell two basis points, to 0.49 percent, having declined for the past eight days. Portugal’s 10-year yield dropped five basis points to 2.42 percent.

Currencies

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, fell 0.7 percent, halting a four-day advance. The greenback slid most against the currencies of Malaysia, South Korea and Australia. It declined 0.7 percent to $1.07365 per euro.

“The market’s been reassured that when the Fed does start to raise rates -- which looks likely to be in December -- the subsequent pace of tightening will be very gradual,” said Lee Hardman, a London-based currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “That, at least temporarily, has weighed modestly on the dollar.”

The yen gained 0.6 percent to 122.85 per dollar after the central bank left monetary policy unchanged and said “inflation expectations appear to be rising.” Governor Haruhiko Kuroda, who unleashed unprecedented monetary stimulus at the Bank of Japan in 2013 and doubled down on it last year, is done expanding his efforts, according to an increasing number of economists.

Emerging Markets

The MSCI Emerging Markets Index rallied 1.9 percent, heading toward the biggest weekly gain since the period ended Oct. 9. Equity gauges in South Korea, India and South Africa jumped more than 1 percent. The Hang Seng China Enterprises Index and the Shanghai Composite Index both jumped 1.4 percent. India’s benchmark rebounded from a two-month low.

Malaysia’s ringgit led currencies higher, increasing 1 percent, and South Korea’s won strengthened 0.9 percent. Both climbed the most since October. 

Commodities

A measure of industrial metals fell to the lowest in more than six years amid concern that demand is sputtering in China, the world’s biggest consumer of everything from aluminum to zinc. The Bloomberg Industrial Metals Subindex, down 29 percent this year, traded little changed on Thursday after falling as much as 1 percent to the lowest since February 2009.

Aluminum fell to a six-year low on the London Metal Exchange, while lead posted a ninth straight decline, the longest slump since 2011.

Gold futures rose the most in more than a month as a measure of the dollar retreated from the highest in at least a decade, boosting the metal’s appeal as an alternative. Silver was poised to halt its longest losing streak on record in data that start in 1950.

Oil touched the lowest level in almost three months. Futures declined 0.5 percent to settle at $40.54 a barrel in New York, the lowest close since Aug. 26. They fell below $40 for the first time since August on Wednesday. Crude has slumped about 45 percent the past year amid speculation the global glut will persist.

The Baltic Dry Index, a measure of shipping costs for commodities including iron ore, fell to a record low as China leads a global slump in demand growth for the industry’s single biggest source of cargoes.

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