U.S. Stocks Rise While Dollar Sinks on Fed Rate TalkJeremy Herron and Callie Bost
U.S. stocks rose, as technology shares rallied a second day, while Treasuries fluctuated and the dollar sank after Federal Reserve meeting minutes eased concern about the timing of future interest rate hikes.
The Standard & Poor’s 500 Index added 1.1 percent at 4 p.m. in New York. The yield on 10-year Treasury notes was little changed at 2.69 percent after earlier adding four points. The dollar extended declines to trade at the weakest level in five months, while gold erased an earlier drop. Oil climbed to a one-month high.
Several Federal Reserve policy makers said a rise in their median projection for the main interest rate exaggerated the likely speed of tightening, according to minutes of their March meeting. Treasury yields rose with the dollar last month after policy makers predicted that the benchmark rate would rise faster than previously forecast and Fed Chair Janet Yellen said bond purchases could end this fall with rates possibly rising about six months later.
“These minutes are calming for the markets,” Jeffrey Kleintop, chief market strategist at LPL Financial LLC, which manages about $414 billion, said by phone from Boston. “A slower pace of interest rates seems more likely here. The six months language Yellen said does not appear here. There is no time period mentioned so it does appear to be an off-the-cuff comment from Yellen.”
“Several participants noted that the increase in the median projection overstated the shift in the projections,” the minutes showed. Some expressed concern the rate forecasts “could be misconstrued as indicating a move by the committee to a less accommodative reaction function.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, fell 0.3 percent for a fourth day of declines that left the gauge at the lowest level since October. The index rallied 0.8 percent after Yellen’s comments after the meeting in March.
“The market’s grabbed onto the line that says the forecasts overstated the rate-rise pace,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc, said in a phone interview. “The dollar weakened a bit on the back of that seemingly dovish message, although I think the market is reading a little bit too much into it.”
The speculation that the rate increases will be pushed back led to a widening in the difference between yields on two- and 10-year notes. U.S. debt fell earlier today as the Treasury sold $21 billion of 10-year securities as part of $64 billion of note and bond sales this week.
Two-year note yields fell three basis points, or 0.03 percentage point, to 0.36 percent, according to Bloomberg Bond Trader prices. The gap between two- and 10-year debt reached 231 basis points after narrowing to 221 bas points on March 27, the least since October.
The S&P 500 traded higher before the Fed minutes as investors returned to technology stocks for a second day after the Nasdaq 100 Index had its worst three-day drop since 2011. The equities benchmark fell as much as 2.4 percent from a record reached April 2 as concern about valuations in technology stocks overshadowed optimism on Fed monetary stimulus.
The Nasdaq 100 jumped 1.8 percent today, the most since February, after a 0.9 percent advance yesterday. Facebook Inc. increased 7.3 percent, its biggest rally since January, while a Nasdaq index of biotechnology stocks surged 4.1 percent for its best day in almost a year.
Investors also watched corporate earnings after Alcoa Inc. yesterday unofficially kicked off the first-quarter reporting season by topping analysts’ expectations. The largest U.S. aluminum producer gained 3.5 percent.
JPMorgan Chase & Co. and Wells Fargo & Co. are among the S&P 500 companies that report their earnings on Friday.
“We’ve been in this pre-earnings information void and no we’re going to have a threshold and we’ll see which companies will continue to grow and which won’t,” Dan Veru, chief investment officer who helps oversee $5 billion at Palisade Capital Management LLC, said by phone. “This is the year of individual stock-picking. That’s what will drive returns.”
The MSCI Emerging Markets Index increased 0.5 percent, poised for its 13th gain in 14 sessions and the highest close this year.
“Investors have raised investments in developed markets so much that it’s a time for them to return to emerging markets to cover some of their underweight positions,” said Supongvorn Mianpoka, a senior vice president at Asset Plus Fund Management Co., which oversees about $850 million in Bangkok. “Rising optimism about China’s stimulus package also boosts investor sentiment for equities in China and other emerging markets.”
Emerging-market equities briefly pared gains after the International Monetary Fund warned of risks on corporate debt. Years of cheap credit have inflated corporate and sovereign debt in emerging markets that now find themselves at greater risk of capital flight if global interest rates rise further, the IMF said.
West Texas Intermediate rose 0.9 percent to $103.48 in New York, the highest since March 5, as a government report showed rising consumption of gasoline reduced inventories of the fuel.
Gold futures climbed 0.1 percent to 1,309.47 after earlier falling as much as 0.6 percent.
The yen dropped versus most of its 16 major peers, falling 0.1 percent to 101.93 per dollar, after a 1.3 percent advance yesterday. Japan’s currency weakened 0.5 percent per euro. The 18-nation shared currency was at $1.3849.