U.S. Stocks Rally on Citigroup, Data as Treasuries Drop

The Standard & Poor’s 500 Index rebounded from the worst weekly loss in two years, weathering a selloff in the final hour, after retail sales rose the most since 2012 and Citigroup Inc.’s earnings unexpectedly rose. Treasuries fell with the ruble and commodities advanced on concern the situation in Ukraine is worsening.

The S&P 500 gained 0.8 percent to 1,830.61 at 4 p.m. in New York, after briefly erasing gains in the final hour. Citigroup jumped 4.4 percent. The 10-year Treasury yield rose two basis points to 2.65 percent. The ruble slid 0.9 percent against the dollar after clashes between Ukrainian forces and pro-Russian gunmen turned deadly. The S&P GSCI gauge of 24 raw materials rose 0.9 percent to the highest level since March 4. Palladium advanced to the highest since August 2011, wheat rallied 2.8 percent and nickel jumped to the highest since February 2013.

Citigroup, the third-biggest U.S. bank, reported an unexpected profit increase in the first quarter after disappointing results from JPMorgan Chase & Co. and a selloff in technology stocks sent the S&P 500 to its biggest weekly loss since June 2012. Retail sales increased in March by the most since September 2012, Commerce Department figures showed. European officials weighed expanding sanctions against Russia over Ukraine

“When you have a market down so much over the past few weeks, people are getting a little bit worried,” Brent Schutte, senior investment strategist at BMO Global Asset Management in Chicago, said in a phone interview. The firm has over $128 billion in assets. “Any time you get incrementally better U.S. data and decent earnings, you have a backdrop to go higher.”

Hedge Funds

The S&P 500 and Nasdaq Composite Index wiped out rallies of more than 1 percent as the market headed into the final hour of trading, only to surge before the close. The Nasdaq Composite ended the day with a 0.6 percent gain, while the Russell 2000 Index added 0.4 percent.

A retreat in so-called high-beta stocks including Facebook Inc. dragged the Nasdaq Composite down as much as 0.3 percent. Internet stocks and biotechnology companies are considered to have higher beta, or volatility, than the market because their earnings potential is hard to predict.

The Dow Jones Internet Composite Index jumped 0.8 percent after tumbling 3.3 percent last week. Twitter Inc. and Yahoo! Inc. rallied more than 1.8 percent. The Nasdaq Biotechnology Index was little changed, recovering after rallying 2.7 percent and then plunging 1.9 percent. The gauge entered a bear market on April 11, falling more than 20 percent from an all-time high in February.

High Beta

“Right now everyone is watching beta to figure out whether or not the beta flush trade is over,” Yousef Abbasi, a market strategist at JonesTrading Institutional Services LLC in New York, said in an interview. “That is dictating overall market sentiment.”

The S&P 500 slid 2.6 percent last week amid disappointing results at JPMorgan Chase & Co. and signs hedge funds were dumping the bull market’s best performers. The benchmark index dropped as much as 4 percent from an all-time high on April 2 as concern grew that valuations may be too high as earnings season begins.

Coca-Cola Co., Goldman Sachs Group Inc., Yahoo, Google Inc. and General Electric Co. are among companies scheduled to report earnings later this week. Profit for members of the S&P 500 probably fell 0.9 percent in the first quarter, analysts now forecast, after anticipating a 6.6 percent rise in January. Sales increased 2.6 percent, according to projections.

The S&P 500 has rallied as much as 180 percent from its 2009 low as earnings surpassed forecasts and three rounds of bond purchases from the Federal Reserve fueled economic growth.

Retail Sales

U.S. retail sales jumped a greater-than-forecast 1.1 percent in March, the biggest gain since September 2012, following a 0.7 percent advance in February that was more than twice as large as previously reported, Commerce Department figures showed today in Washington. Ten of 13 categories, from auto dealers to furniture and clothing stores, showed a pickup.

More seasonable temperatures unleashed demand among customers who had been unable to dig out from snow storms that hurt the world’s largest economy at the start of the first quarter. The surge in sales means consumer spending will propel a marked rebound in growth from April through June.

Citigroup advanced 4.4 percent today as the company recouped funds previously set aside for bad loans and cut losses at a division holding unwanted assets. Energy producers and technology stocks led the recovery from last week’s slump as all 10 main industries in the S&P 500 rose.

Rotation Pattern

While U.S. stocks have tumbled as investors bought companies with stable earnings and dumped Internet and biotechnology shares, it doesn’t mean the bull market is over, according to Goldman Sachs Group Inc.

Stocks tend to recover after similar rotations, with the S&P 500 rising an average 5 percent over the next six months, according to a study by Goldman Sachs on 46 instances of a momentum reversals since 1980. Low interest rates and reasonable equity valuations will help prevent the market from crashing like 2000, said strategists led by David Kostin.

“The recent momentum drawdown is unlikely to precipitate a more extensive fall in share prices,” they wrote in an April 11 note.

Hedge Funds

The S&P 500 trades at about 17 times earnings. While that’s near the highest level in four years, it’s close to the average since 1937, data compiled by Bloomberg and S&P show.

Hedge funds are saying goodbye to the calm that blanketed U.S. stocks for the past two years. Large speculators have reduced bets on lower volatility and were net short about 1,000 contracts on VIX futures last month, the fewest since 2011, according to a report from the Commodity Futures Trading Commission. The action amounts to speculation equities will keep falling since the Chicago Board Options Exchange Volatility Index moves in the opposite direction of the S&P 500 about 80 percent of the time.

The VIX, a benchmark gauge for equity options, slipped 5.4 percent to 16.11 today, after briefly erasing losses in the last hour. The measure has jumped 17 percent this year.

The MSCI Emerging Markets Index slid 0.4 percent, retreating for a second day.

European officials weighed expanding sanctions against Russia over Ukraine, where they say the government in Moscow is stoking deadly separatist unrest. Officials from the U.S. and Russia blamed each other at an emergency meeting of the United Nations Security Council yesterday for violence that left at least one Ukrainian serviceman dead. Envoys from Ukraine, Russia, the U.S. and the EU also are scheduled to hold talks on the crisis in Geneva April 17.

Ruble, Micex

The ruble dropped to 35.96 per dollar, the weakest since March 24. Turkey’s lira weakened 0.4 percent and South Africa’s rand declined 0.2 percent per dollar, while Hungary’s forint lost 0.5 percent against the euro.

Russia’s Micex Index fell 1.3 percent, taking its loss since President Vladimir Putin’s incursion into the Crimea region at the beginning of March to 7 percent.

“The Ukraine tension is giving things linked to Russia a sentiment boost but this remains more of a tail risk, especially as many commodities already have their own existing supply story,” Dominic Schnider, head of commodities research at UBS AG’s wealth-management unit, said by phone from Singapore.

Palladium, Nickel

The S&P GSCI climbed 0.9 percent to the highest level since March 3. Palladium increased as much as 1.4 percent to $817 an ounce and nickel gained 2.2 percent, the 11th consecutive gain in the longest streak since October 2010. Wheat jumped 2.8 percent after three days of declines. Russia is the biggest producer of palladium, is the fifth-largest wheat exporter and Moscow-based OAO Norilsk Nickel is the top producer of refined nickel.

U.K. natural gas, the European Union’s benchmark contract, climbed for a fourth day, advancing 1.9 percent. Europe gets about a third of its natural gas from Russia, half of it through Ukraine. U.S. natural gas futures slumped 1.3 percent on speculation that stockpiling may accelerate as milder weather reduces fuel use.

Brent and West Texas Intermediate crudes rose to five-week highs on escalating tension between Ukraine and Russia. The North Sea oil’s premium to WTI widened for the first time in seven days. Brent for May settlement increased 1.6 percent, while WTI added 0.3 percent. Gold climbed 0.6 percent.

European Stocks

The Stoxx Europe 600 Index climbed 0.3 percent. The gauge dropped 3.1 percent last week, the biggest loss in a month. Basic resources led advances among the 19 industry groups today, adding 1.9 percent.

Caracal Energy Inc. jumped 55 percent after Glencore Xstrata Plc agreed to pay 550 pence a share for the company. Glencore rose 2 percent. PSA Peugeot Citroen retreated 6.3 percent after Europe’s second-largest carmaker set a 2018 profitability target, outlining plans to cut its model lineup by almost half.

Euro-area government bonds rose and the euro slipped after European Central Bank President Mario Draghi said the strengthening of the region’s shared currency warrants more monetary stimulus.

Italy’s 10-year yield fell four basis points to 3.17 percent. The rate dropped to 3.14 percent on April 7, the lowest since Bloomberg started collecting the data in 1993. Spain’s 10-year yield declined five basis points to 3.14 percent.

The euro fell 0.5 percent to $1.3821. The currency climbed 1.3 percent last week, the biggest advance since the period ended Sept. 20. It lost 0.3 percent to 140.76 yen. The dollar gained 0.2 percent to 101.85 yen.

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