Stocks Rally on Economy; 10-Year Yield at Highest in Year

Global stocks rose for the first time in five days, commodities gained and Treasuries slid as U.S. reports showed consumer confidence reached the highest level since 2008 and home values jumped the most in seven years. The yen weakened while the dollar rose.

The MSCI All-Country World Index gained 0.4 percent while the Standard & Poor’s 500 Index climbed 0.6 percent to 1,660.06 at 4 p.m. in New York and the Dow Jones Industrial Average jumped 106.29 points to 15,409.39, returning to a record. The 10-year Treasury yield surged 16 basis points to 2.16 percent, the highest since April 2012. Japan’s currency slid against 14 of its 16 major peers as an adviser to the prime minister said the central bank can add to its stimulus. The S&P GSCI commodities gauge jumped 1 percent, the most in almost a month.

The Conference Board’s index of consumer sentiment climbed more than forecast to 76.2, the strongest level in more than five years. The S&P/Case-Shiller index of property values in 20 cities jumped 10.9 percent in the 12 months through March, the most since April 2006. The Bank of Japan should loosen monetary policy further if needed, said Koichi Hamada, adviser to Prime Minister Shinzo Abe, while European Central Bank Executive Board Member Peter Praet said the central bank will continue to do what is necessary, according to an article in Handelsblatt.

“The confidence data is really inspiring,” Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC in Philadelphia, which manages $55 billion, said by telephone. “It’s reinforcing the picture that we continue to see strong momentum in the housing market, which is good news for the consumer’s wallet,” he said. “Our markets are responding somewhat favorably to news from Europe that there’s discussion of further stimulative activity. It’s a trifecta of good data points.”

Market Leaders

Eight of the 10 main S&P 500 groups rose, as gauges of financial, commodity, consumer and health-care shares rallied at least 0.9 percent to lead gains while utilities and telephone stocks posted the only declines. Merck & Co. added 1 percent after Jefferies & Co. lifted the stock to a buy. Exxon Mobil Corp. and Bank of America Corp. paced gains among the biggest U.S. companies, rising at least 0.8 percent. Tiffany & Co. increased 4 percent after reporting first-quarter earnings that beat analysts’ estimates amid growing demand in Asia.

Financial shares in the S&P 500 rallied 1 percent as a group. Moody’s Investors Service upgraded its view of the U.S. banking system to “stable” from “negative” for the first time since 2008, citing an improved operating environment and less risk from a weak economy. Lenders have built capital and reduced costs from bad credit, Moody’s said in a statement today.

Financial Shares

“Sustained GDP growth and improving employment conditions will help banks protect their now-stronger balance sheets,” Sean Jones, co-author of the report, said in the statement.

Options traders are paying the least in more than two years to hedge against declines in U.S. financial shares, reassured by analysts who say they will report the biggest profit since 2007 this year.

Puts protecting against a 10 percent decline in the Financial Select Sector SPDR Fund cost 4.12 points more than calls betting on a 10 percent increase, according to three-month options data compiled by Bloomberg. That’s the lowest since November 2010. Banks and brokerages in the S&P 500 rallied 21 percent this year.

The Dow has gained for 20 straight Tuesdays through today, the longest streak since at least 1900, according to data by Schaeffer’s Investment Research. The winning streak is the second-longest for any day of the week, following the Dow’s gain for 24 straight Wednesdays in 1968, data by Schaeffer’s Senior Technical Analyst Ryan Detrick show.

Retreat From High

Today’s gain eased concern that last week’s 1.1 percent slump in the S&P 500 signaled more losses to come. The S&P 500 reached an intraday record of 1,687.18 on May 22 and fell 1.9 percent through the close. The previous two times the benchmark gauge set an intraday high and dropped more than 1 percent from that level in the same day, it marked the end of a bull market, according to data compiled by Bloomberg. The 1.4 percent retreat on Oct. 11, 2007, was followed by a 56 percent plunge the next 17 months. On March 24, 2000, the S&P 500 reached a record 1,552.87, fell 1.6 percent that day and then erased 49 percent through October 2002.

Two-year Treasury yields increased four basis points to 0.29 percent, the highest since November on a closing basis, and 30-year rates jumped 15 basis points to 3.33 percent as the U.S. sale of $35 billion in two-year debt attracted the fewest bids for the securities since February 2011.

Treasury Auction

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.04, compared with an average of 3.72 for the past 10 sales. Yields also climbed as today’s economic data highlighted Federal Reserve Chairman Ben S. Bernanke statement last week that the central bank could cut the pace of asset purchases if officials see indications of sustained economic growth.

Investors are pumping record amounts of money into U.S. balanced funds, whose freedom to buy stocks and bonds made them barometers for gains in the biggest bull markets of the past half century.

Managers led by Capital Research & Management Co. and Invesco Ltd. received $35.2 billion from January to April, the most in any four months, according to data compiled by Bloomberg and the Washington-based Investment Company Institute. Assets in the funds increased 3.6 percent, compared with 1.2 percent for those that only buy equities.

Europe Markets

The Stoxx Europe 600 Index advanced for a second day, climbing 1.3 percent. Societe Generale SA and Barclays Plc advanced more than 2.5 percent. AstraZeneca Plc increased 2.7 percent after agreeing to pay $323 million for Omthera Pharmaceuticals Inc., a U.S. drugmaker with an experimental treatment for patients with high levels of triglycerides, which can contribute to heart attacks and strokes. Omthera jumped a record 99 percent.

Europe’s benchmark equity gauge has rallied 3.9 percent so far this month and the S&P 500 has risen about the same amount in May, poised for its best month since January.

The MSCI Emerging Markets Index added 0.1 percent today, advancing for a third day, as benchmark gauges in China, Russia, Hungary, Indonesia and Thailand rose at least 1 percent. Taiwan Semiconductor Manufacturing Co. led declines among exporters, dropping 2.2 percent, on concern a weaker yen will hurt their competitiveness.

Rand, Yen

The rand retreated as much as 1.9 percent versus the dollar, trading at the lowest level since 2011, after a report showed South Africa’s economic growth slowed to an annualized 0.9 percent in the first quarter. That was less than the 1.6 percent median of 15 estimates in a Bloomberg survey.

The yen slid 1.2 percent to 102.23 per dollar as Hamada said central bank Governor Haruhiko Kuroda “should continue to trust in his judgment and ease further” if needed. Japan’s currency lost 0.9 percent per euro. The 17-nation shared currency slipped 0.4 percent to $1.2877 while the dollar strengthened versus 14 of 16 major peers.

The Japanese currency’s decline versus the dollar takes its retreat in May to 4.7 percent. That would be an eighth month of declines. More yen weakness is “not out of the question,” Hamada said in an interview in Tokyo today.

Italy Auction

Italy’s borrowing costs fell to a record low at the sale of 2.5 billion euros ($3.23 billion) of zero-coupon 2014 notes. The yield on 10-year bonds dropped two basis points to 4.03 percent.

The cost of insuring corporate bonds declined with the Markit iTraxx Europe Index of credit-default swaps linked to 125 investment-grade companies sliding two basis points to 95 basis points.

U.K. government bonds retreated with Treasuries. The yield on the U.K.’s 10-year securities climbed five basis points to 1.96 percent, the highest since March 15. The rate on similar-maturity German bunds increased four basis points to 1.50 percent, also the highest since March.

Treasuries lost 1.3 percent this month through yesterday, set for their biggest loss in 29 months, a Bank of America Merrill Lynch index shows. German bonds slipped 1.2 percent and U.K. securities tumbled 1.7 percent.

The S&P GSCI climbed for the first time in a week, led by a 2.7 percent rally in corn before a government report that may show wet weather slowed planting in the Midwest. The index is up 1 percent this month even as gold tumbled more than 6 percent and silver dropped about 8 percent.

Heating oil advanced 1.9 percent today and West Texas Intermediate oil rallied 0.9 percent to $95.01 a barrel, the first gain in a week. The Organization of Petroleum Exporting Countries is expected to keep its output target at 30 million barrels a day on May 31 when the group meets in Vienna, a Bloomberg News survey shows.

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