S&P 500, Dow, Nasdaq Hit Records Together First Time Since 1999

What Can Stop the Stock Market Rally?
  • European shares erase post-Brexit decline; Treasuries drop
  • Yen little changed Friday; Japan markets closed Thursday

All three U.S. stock benchmarks rose together to record highs for the first time in 16 years amid surprising earnings. European shares erased the slump that followed Britain’s secession vote. Oil climbed, while Treasuries slumped.

The S&P 500 Index, Dow Jones Industrial Average and Nasdaq Composite Index advanced amid better-than-forecast profits at retailers Macy’s Inc. and Kohl’s Corp. Europe’s stocks closed at the highest since May. Oil climbed on speculation producers could agree on moves to support prices during talks in September. Treasuries fell as an auction of 30-year bonds saw a retreat from the level of investor interest at previous sales this week. Mexico’s peso led gains among major currencies as the central bank kept its interest rates unchanged.

Investors have piled into global equities amid better-than-estimated corporate earnings, improving economic data and optimism central banks will stay supportive of growth. The number of Americans filing applications for unemployment benefits was little changed last week, holding near four-decade lows that highlight a more robust labor market. Still, that stronger jobs picture has yet to convince traders that the world’s largest economy is solid enough for the Federal Reserve to raise interest rates this year.

“We’re continuing to grind higher,” said Stephen Carl, principal and head equity trader at Williams Capital Group LP in New York. “You had some retail earnings that came in better than expected. Economic numbers such as jobless claims didn’t do anything to challenge the strength.”

Stocks

The S&P 500 gained 0.5 percent to 2,185.79 at 4 p.m. in New York, extending this year’s advance to 6.9 percent. The Dow Average and Nasdaq added more than 0.4 percent. The three indexes rose simultaneously to records for the first time since Dec. 31, 1999.

Fresh records in U.S. stocks are getting harder for strategists to ignore. Wells Fargo & Co. became just the second of 21 firms tracked by Bloomberg to raise its target for the S&P 500 since the measure surged past the group’s average year-end prediction a month ago. Gina Martin-Adams, the bank’s chief U.S. equity strategist, now expects the benchmark for American equities to climb to 2,200 in 12 months.

Macy’s jumped 17 percent after also saying it plans to close about 14 percent of its stores in a bid to maintain profitability. Kohl’s rallied the most ever, while peers J.C. Penney Co. and Nordstrom climbed at least 7.5 percent. More than four-fifths of the S&P 500’s companies have posted results so far, of which 78 percent beat profit projections and 56 percent exceeded sales expectations.

The Stoxx Europe 600 Index rose 0.8 percent, reversing an earlier drop to rise for the sixth time in seven days. Zurich Insurance added 4.5 percent after saying profit fell less than projected. Belgian lender KBC Group NV advanced 5.2 percent after also cutting its forecast for 2016 loan-loss provisions in Ireland.

Brazil’s Ibovespa led gains among the world’s biggest equity markets after Banco do Brasil SA said provisions for bad loans would fall in the second half of the year and as a rebound in oil boosted state-owned crude producer Petroleo Brasileiro SA.

Commodities

West Texas Intermediate for September delivery climbed 4.3 percent to settle at $43.49 a barrel in New York. Total volume traded was 25 percent above the 100-day average. Talks with oil producers in Algiers next month could include possible action to stabilize the market, Saudi Arabia’s energy minister said, according to Reuters.

"The market is obviously keying off the Saudi comments about the upcoming talks," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "There’s a greater likelihood that they will be able to pull something together this time, with Iran getting a lot closer to its target and the Saudis being more flexible."

The rally in oil helped lift the Bloomberg Commodity Index from a two-day slide. Copper gained, while gold fell.

Bonds

Benchmark 10-year note yields rose five basis points, or 0.05 percentage point, to 1.56 percent, Bloomberg Bond Trader data show. A gauge of demand at the $15 billion 30-year debt sale was the lowest in three months.

Investors are hesitant to buy into bond rallies amid rising speculation the Fed will raise rates this year, with the probability of a 2016 hike at about 49 percent, according to futures data compiled by Bloomberg. San Francisco Fed President John Williams said Thursday that an increase this year is warranted. 

“It’s a risk-on type of trade -- you’ve seen heavy pressure throughout the day and it just continued after the auction,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald LP, one of the 23 primary dealers that trade with the Fed. As for the central bank’s next rate increase, “I feel like December is a fair estimate,” he said.

Currencies

Mexico’s peso rallied for a fifth day as Banco de Mexico led by Governor Agustin Carstens held its overnight rate at 4.25 percent, a move predicted by all but one of 28 economists surveyed by Bloomberg.

Brazil’s real slipped the most in Latin America as the central bank escalated efforts to weaken the currency, counteracting optimism after lawmakers voted to move forward with the impeachment of suspended President Dilma Rousseff.

Bloomberg’s dollar index, a gauge of the greenback versus 10 major peers, rose 0.1 percent.

The yen was little changed Friday. Financial markets in Japan were shut for a holiday on Thursday.

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