S&P 500 Returns to Record While U.S. Treasuries Advance

The Standard & Poor’s 500 Index returned to a record as a Federal Reserve official said bond purchases should continue and Goldman Sachs Group Inc. forecast the stock rally will last at least through 2015. Treasuries rose and the yen pared earlier losses while grains and gold fell.

The S&P 500 climbed 0.2 percent to 1,669.16 at 4 p.m. in New York, while the Stoxx Europe 600 Index erased a 0.7 percent drop to close little changed. The yield on the 10-year Treasury note fell four basis points to 1.93 percent. Japan’s currency was 0.2 percent weaker against the dollar, paring a 0.6 percent drop. The pound slid 0.7 percent to $1.5151 after U.K. inflation slowed more than economists forecast in April. Corn, wheat and gold paced losses in commodities.

Goldman Sachs said the market’s rally may last at least another 2 1/2 years and send the S&P 500 up 26 percent to 2,100 as valuations increase amid improving confidence in the economy. Fed Bank of St. Louis President James Bullard said bond buying is policy makers’ best available option to boost growth. Home Depot Inc. helped lead the Dow Jones Industrial Average’s gain today after the retailer’s earnings beat estimates.

“This bull market has been driven by many factors and two of them are the monetary policy by the Federal Reserve and the recovery of the housing market,” Omar Aguilar, the San Francisco-based chief investment officer of equities at Charles Schwab Investment Management, said in a telephone interview. The firm had $224 billion in assets under management as of Dec. 31. “The earnings number from Home Depot just confirmed the fact that the housing recovery is real and continues to be stable.”

Bull Market

The S&P 500 has gained 17 percent this year and almost 147 percent from its bear-market low in 2009 as Fed stimulus measures and earnings growth fueled a four-year rally.

The benchmark index slipped 0.1 percent yesterday, retreating from an all-time high, amid concern an improving economy will cause the Fed to taper its bond purchases. Chicago Fed President Charles Evans said yesterday the U.S. economy is “improving quite a lot.” Fed Chairman Ben S. Bernanke testifies on the economy in Congress tomorrow.

New York Fed President William C. Dudley said he has not decided whether the central bank’s next move should be to enlarge or shrink its bond-buying program as he called for a fresh look at its eventual retreat from record asset purchases.

“Because the outlook is uncertain, I cannot be sure which way, up or down, the next change will be,” Dudley said in prepared remarks for a speech today in New York.

Market Leaders

Gauges of health-care, consumer, financial and industrial stocks were among the biggest gains of the 10 main industries in the S&P 500 today, while telephone, commodity and technology companies posted the biggest declines.

Home Depot, the largest U.S. home-improvement retailer, jumped 2.5 percent to a record $78.71 after net income increased 18 percent to $1.23 billion in the first quarter, beating the average analyst estimate by 9 percent. JPMorgan Chase & Co. rose 1.4 percent to a six-year high as shareholders voted for Jamie Dimon to keep his dual chairman and chief executive officer title. Medtronic Inc. rallied 4.9 percent, the most since 2011, as quarterly sales of pacemakers and defibrillators rose, surprising analysts who expected shrinking demand do continue.

Apple Inc. slipped 0.7 percent as the company faced a Senate panel that yesterday released a report saying the iPhone maker used loopholes to avoid paying taxes.

David Kostin, Goldman Sachs’s chief U.S. equity strategist, boosted his year-end forecast for the S&P 500 by 7.7 percent from 1,625 to 1,750. He raised his 2014 projection to 1,900 and his 2015 forecast to 2,100. He kept his estimates for combined earnings by S&P 500 companies at $108 a share in 2013 and $116 for next year.

‘Wide Gap’

Price-to-earnings multiples will expand amid “confidence in the medium-term outlook for U.S. economic growth and the wide gap between equity and persistently low bond yields that we assume will be closed more by stocks than bonds,” New York-based Kostin wrote in a note dated yesterday.

The S&P 500’s dividend yield, currently at 2.02 percent, has been higher than the rate on 10-year Treasury notes for more than a year. The equity index trades at 16.3 times reported operating profit, 16 percent below the average since 1998, data compiled by Bloomberg show.

U.S. two-year Treasury yields were little changed at 0.23 percent, while 30-year rates slipped five basis points to 3.13 percent. The dollar was weaker against seven of 16 major peers, losing more than 0.5 percent versus the South Korean won, Swedish krona and Norwegian krone. The Dollar Index, a measure against six major trading partners, was up less than 0.1 percent at 83.81 after jumping 0.6 percent before Bullard’s remarks were released.

China’s State Administration of Foreign Exchange has set up an operation in New York to make alternative investments in the U.S., the Wall Street Journal reported, citing people it didn’t identify. The new operation, which will focus on private equity, real estate and other assets, is an effort by China’s foreign-exchange reserves manager to diversify away from U.S. government debt, the newspaper reported.

China’s Investments

SAFE has sought to vary its portfolio in the past year by buying European assets and Japanese stocks, the newspaper reported, citing the unnamed people. Officials in recent weeks met with Wall Street banks about potential investment opportunities, according to the report. It’s not clear if any deals have been signed, the publication said,

The Stoxx Europe 600 Index was little changed after a four-week rally drove the gauge to the highest level since June 2008. Carnival Corp., the world’s biggest cruise operator, plunged 5.9 percent in London trading after lowering its profit target. Sonova Holding AG fell 1.1 percent as the world’s largest hearing-aid maker forecast slowing profit growth this year.

Emerging, Currencies

The MSCI Emerging Markets Index was little changed. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong dropped 0.9 percent, the most in a week, led by Industrial & Commercial Bank of China Ltd. after Goldman Sachs was said to have sold its stake in the lender. Russia’s Micex Index rose 1.2 percent, extending its three-day rally to 3.6 percent, and Brazil’s Bovespa climbed 0.6 percent to extend its three-day rally to 2.3 percent.

In currency markets, the yen weakened against 12 of 16 major peers as Japan’s Economy Minister Akira Amari backed away from comments that drove the currency to its biggest gain in three weeks yesterday. Japan’s Amari said today the overly strong yen is in the process of being corrected and can’t say when it will end after commenting two days ago that the weakness may hurt “people’s lives.”

“While the market does not expect the Federal Reserve to stop its $85 billion a month in asset purchases at once and, like the Fed itself, continues to mull an exit strategy, few consider the same in terms of Japan,” Brown Brothers Harriman & Co. currency strategists led by Marc Chandler wrote in a note to clients. “Amari’s comments can be understood as tapping on the brakes, or blowing air under a parachute to help create the conditions of a soft landing to the yen.”

Yen Weakness

The Japanese currency has slumped 19 percent in the past six months, the most among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as Prime Minister Shinzo Abe pledged to beat deflation and the Bank of Japan doubled monthly bond purchases. It tumbled to 103.31 per dollar on May 17, the weakest level since October 2008, after strengthening to a post-World War II record of 75.35 in October 2011. The BOJ started a two-day policy meeting today.

“They need a weaker yen to help the economy and what they don’t want is the unintended consequences of big volatility that comes with it,” said Nizam Idris, head of currency strategy in Singapore at Macquarie Group Ltd. “Growth is improving and we will need to see more of the impact of the weak yen on the macro economy. The yen weakness will continue, though the pace should be slower toward year-end.”

Amari said he hoped the yen would stabilize at a level that matches the nation’s economic fundamentals.

“I have previously said that the overly strong yen is in the process of being corrected,” he told reporters in Tokyo. “I will not say it has been corrected, or where it will finish.”

Pound Slides

The pound weakened against all but one of its 16 major peers. Consumer prices climbed 2.4 percent from a year earlier, less than the 2.6 percent median forecast in a Bloomberg survey, data from the Office for National Statistics showed. The Bank of England releases minutes of its May 8-9 meeting tomorrow.

The Swiss franc fell against 13 of 16 major peers, touching a four-month low versus the euro, as the International Monetary Fund said the introduction of negative interest rates on banks’ excess deposits may help the Swiss National Bank cool the nation’s real-estate market.

The rand tumbled 1.2 percent to the weakest against the dollar since 2011 as violent protests erupted at a South African chrome mine.

Commodities Slip

Corn futures lost 1.5 percent, the biggest drop in more than a week, after the government said U.S. farmers planted the most ever in a single week as the Midwest got drier and warmer. Wheat fell to a seven-week low, and soybeans rose. Gold futures for June delivery lost 0.5 percent to $1,377.60 an ounce and silver slid 0.6 percent to $22.455.

As diminishing faith in gold is spurring investors to sell record amounts of the metal, demand for platinum and palladium is strengthening as mining companies curb supply.

Gold owned through exchange-traded products fell 17 percent this year as platinum holdings rose 31 percent and those in palladium 17 percent, data compiled by Bloomberg show. Platinum will end the year at $1,690 an ounce, or 16 percent more than now, while palladium will gain 7.5 percent to $800 an ounce, according to the medians of 15 analyst estimates compiled by Bloomberg. The majority of 38 analysts surveyed last month said gold would post an annual drop, ending a 12-year winning streak, amid waning trust in gold as a store of value after prices tumbled into a bear market in April.

Before it's here, it's on the Bloomberg Terminal.