U.S. Shares Climb While Treasuries Advance, Dollar Falls

U.S. stocks rose on optimism the economy is recovering from a first-quarter contraction, while Treasuries advanced and the dollar fell. European shares tumbled as crises deepened in the Middle East and Ukraine.

The Standard & Poor’s 500 Index rose 0.5 percent at 4 p.m. in New York, rebounding after a 0.6 percent drop yesterday. The 10-year Treasury yield decreased two basis points to 2.56 percent. The Stoxx Europe 600 Index slumped 1.1 percent, the most since April, and the rate on gilts slid nine basis points to 2.65 percent. The Bloomberg Dollar Spot Index dropped 0.2 percent. West Texas Intermediate crude climbed 0.4 percent as the U.S. opened the door to more oil exports.

The U.S. economy shrank 2.9 percent in the first quarter, more than forecast and the worst reading in five years, while separate data showed orders for U.S. business equipment climbed in May. The U.S. and Europe are prepared to level more sanctions against Russia in the absence of steps by President Vladimir Putin to de-escalate tensions in Ukraine. Sunni militants are consolidating their hold on a swath of Iraq and now threaten the integrity of the state, U.S. military and intelligence officials said.

“What the market is concluding is that first-quarter weakness was indeed weather-related and the second quarter is enjoying a bounce back from that,” Scott Clemons, New York-based chief investment strategist at Brown Brothers Harriman Private Banking, said in a phone interview. The firm oversees $28 billion. “If you average the two quarters together, what you’re seeing is an economy that continues to expand at a modest pace so the market has shrugged this off.”

Economic Data

The U.S. economy contracted in the first quarter by the most since the depths of the last recession as consumer spending cooled. The 2.9 percent decline followed a previously reported 1 percent drop, marking the biggest downward revision from the agency’s second GDP estimate since records began in 1976. The revision reflected a slowdown in health-care spending.

Consumers returned to stores and car dealerships, companies placed more orders for equipment and manufacturing picked up as temperatures warmed, indicating the early-year setback was temporary. Combined with more job gains, such data underscore the view of Federal Reserve policy makers that the economy is improving.

Fed Chair Janet Yellen last week said accommodative monetary policy, rising property and equity prices and the improving global economy should lead to above-trend growth.

Durable Goods

Separate data today showed bookings for non-military capital goods excluding aircraft rose 0.7 percent after a 1.1 percent drop in April, indicating corporate investment is helping revive the economy. Demand for all durable goods decreased 1 percent, reflecting declines in the volatile transportation and defense categories.

Monsanto Co., the largest seed company, jumped 5.1 percent as it announced a $10 billion stock buyback plan. AbbVie Inc. climbed 2.6 percent after saying its $46.5 billion bid for Shire Plc offers “compelling” value for Shire shareholders and that it won’t rule out going hostile in its drive to acquire the drugmaker. CBS Corp. jumped 6.2 percent after the U.S. Supreme Court ruled that Aereo Inc. is violating broadcaster rights.

“The market is partying on,” Sam Wardwell, an investment strategist at Pioneer Investments in Boston, said in a phone interview. His firm manages about $247 billion globally. “Fed tightening is not on the horizon, corporate outlook is fine, and if you look at dividend yields, stocks are attractive from a valuation point of view.”

S&P Record

The S&P 500 closed at a record last week and is up 7.9 percent since a low on April 11 as data showed the economy is recovering from extreme weather. The gauge is up 1.9 percent in June, for its fifth straight monthly increase, and 4.7 percent for the quarter.

Profits as a percentage of the S&P 500’s price, known as earnings yield, total 5.6 percent, exceeding the 2.5 percent yield on the 10-year Treasury note, according to data compiled by Bloomberg. The U.S. equity benchmark pays 1.9 percent in dividends.

U.S. stocks are poised for the third-slowest month in six years. About 5.6 billion shares have changed hands each day in June, trailing every month since 2008 except for the previous two Augusts, data compiled by Bloomberg show.

Trading is likely to get a boost on June 27, when Russell Investments concludes the annual revisions to its equity benchmark gauges. Russell’s U.S. stock indexes, including the Russell 1000 Index and the Russell 2000 Index, are used as benchmarks for $5.2 trillion in assets, according to the company’s website. In the previous two years, the reconstitution day ranked in the top two busiest trading sessions, data compiled by Bloomberg show.

Quarter’s End

With the end of the quarter approaching, investors should expect about $20 billion in selling of equities and some buying of bonds as pension fund managers rebalance their portfolios, Boris Rjavinski, a strategist at UBS AG, estimated in a June 23 report.

Yields on 10-year Treasuries fell to a three-week low today while the dollar slumped as the GDP and durable-goods data raised questions about the pace of future interest-rate increases.

“A weak durable goods reading once again puts the cat among the pigeons in terms of the timing and the magnitude of any monetary tightening from the Federal Reserve,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut. “Short-term interest rates are likely to remain very, very low for quite some time, even after the Fed’s finished tapering.”

Treasury Auction

Treasuries remained higher after the U.S. sold $35 billion in five-year notes. The notes drew a yield of 1.67 percent, compared with a forecast of 1.66 percent in a Bloomberg News survey of six of the Federal Reserve’s 22 primary dealers.

The Stoxx 600 fell for a fourth day, its longest losing streak in seven weeks, with trading volumes 31 percent above the 30-day average, according to data compiled by Bloomberg. All 19 industry groups in the Stoxx 600 dropped. The gauge is down 2.2 percent from a six-year high reached June 10.

The MSCI Emerging Markets Index slid 0.6 percent. The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong fell 0.7 percent to a one-month low and the Shanghai Composite Index slipped 0.4 percent. Stocks fell on concern the first new share listings in four months tomorrow will divert funds.

Russia Sanctions

Russia’s Micex Index lost 2.4 percent.

U.S. Secretary of State John Kerry said in Brussels that the U.S. and Europe will continue to prepare for sanctions against Russia “in the event that the circumstances on the ground” warrant them. Ukrainian President Petro Poroshenko held talks with leaders in Russia, Germany and France to discuss ways to end months of fighting that’s killed more than 400 people.

The rupiah fell 0.8 percent against the dollar after Bank Indonesia said it will allow weakness in the currency to help exports.

Dubai’s General Index jumped 6.1 percent, rebounding after tumbling 13 percent in the previous three days. Dubai’s gauge entered a bear market June 23 after stocks declined 20 percent from a peak in May. Shares had soared more than 250 percent since June 2012, led by property and construction companies.

Oil Exports

WTI crude rose for the first time in three days after the Commerce Department granted Pioneer Natural Resources Co. and Enterprise Products Partners LP requests to classify processed condensates as petroleum products eligible for export. The U.S. is allowing ultra-light oil exports as long as the condensate is lightly processed, tempering the impact of a law that’s banned most overseas petroleum shipments for the past four decades.

Brent dropped 0.4 percent, sliding for the third time in four days. Iraq’s oil minister said the nation’s crude exports will jump next month, adding to signs that fighting in the north isn’t affecting the south, where most of the country’s output occurs.

Gold futures rose 0.1 percent, erasing an earlier loss of as much as 1.2 percent and ending higher for the sixth straight session, as escalating violence in Iraq boosted demand for the metal as an alternative investment.

Copper advanced for a ninth straight session in New York, capping the longest rally since 2005. Cotton entered a bear market as improved prospects for crops in the U.S., the world’s biggest exporter, compounds the outlook for abundant world supplies. Futures have dropped 21 percent from a May high.

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