U.S. Stocks Climb to Records, Bonds Slip on Factory Data

U.S. stocks rose to records, with the Dow Jones Industrial Average climbing to within two points of 17,000, as gauges of factory output in major economies signaled expansion. Gold advanced to a three-month high as the dollar sagged.

The Standard & Poor’s 500 Index climbed 0.7 percent to an all-time high at 4 p.m. in New York. The Dow average jumped 0.8 percent to a record, rising as high as 16,998.70. The yield on 10-year Treasuries added four basis points to 2.57 percent. Gold rose 0.4 percent as the dollar fluctuated near a seven-week low against a basket of 10 major currencies. Corn dropped to a five-month low, while soybeans sank to the lowest since December 2011.

An index of U.S. factory output was little changed near a five-month high, boosting confidence in the world’s largest economy and fueling speculation growth is robust enough for the Federal Reserve to raise interest rates next year. General Motors Co. surprised investors with a U.S. sales gain in June, while Ford Motor Co., Chrysler Group LLC and Nissan Motor Co. all beat estimates. U.S. retail sales had their biggest weekly gain in almost three years, ICSC data showed. China’s manufacturing expanded in June at the fastest pace this year, while Euro-area output grew at a slower pace.

“The market is very resilient,” Steve Krawick, president of West Chester Capital Advisor Inc. in Johnstown, Pennsylvania, said in a phone interview. The firm oversees about $900 million. “Our economy has been stable. We realize the fact that valuations are not cheap, but that doesn’t translate into the end of the bull market.”

Quarterly Results

The S&P 500 yesterday capped a streak of six quarterly gains, its longest since 1998, as global stocks rallied in the past three months. The MSCI All-Country World Index jumped 4.3 percent for a fourth straight gain. It added 0.6 percent to an all-time high today. The MSCI index of emerging-market equities climbed 5.6 percent, its best quarter since September 2012, while the Stoxx 600 in Europe added 2.3 percent.

Gold advanced today after the metal capped a second quarterly advance, according to Bloomberg generic pricing. Bullion had surged 10 percent this year and Treasuries rose in the first half to almost erase last year’s losses, as the U.S. economy contracted while conflict in Iraq and Ukraine fueled demand for the safest securities.

Oil gained 3.7 percent in the second quarter, extending a 3.2 percent rally in the first three months. Crude erased an earlier gain today to fall for a fourth session.

Factory Data

The Institute for Supply Management’s manufacturing index was 55.3 last month, little changed from a five-month high of 55.4 in May, a report showed today. Readings greater than 50 indicate expansion. Producers of wood products, furniture, metals and machinery were among those seeing a pickup in demand as gains in auto and home sales rippled through the world’s largest economy.

Growing consumer spending, lean inventories and improving overseas markets will probably keep assembly lines busy in the second half of the year.

“Manufacturing is back on track,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, the top U.S.-based ISM forecaster over the past two years, according to data compiled by Bloomberg.

Adjusting for seasonal trends, the annualized pace of U.S. auto sales may have accelerated to 16.3 million in June, the average of 14 analysts’ estimates compiled by Bloomberg, from 15.9 million a year earlier.

Retail Sales

Retail sales climbed 4.6 percent last week, ICSC data showed, with business up sharply at apparel, department, discount and wholesale club stores. Retailers rallied 1.5 percent and carmaker shares jumped 1.4 percent.

International Business Machines Corp. surged 2.9 percent for the biggest gain in the Dow. Small-cap stocks rallied, with the Russell 2000 Index adding 1 percent and briefly touching an all-time high.

The S&P 500 advanced 1.9 percent in June for its fifth straight monthly increase and trades at 16.7 times the projected earnings of its members, its highest valuation in four years.

The benchmark gained 6.1 percent in the first half, as data from employment to housing fueled confidence that the U.S. economy is rebounding after the worst contraction in gross domestic product since 2009.

Treasuries’ decline today extended the first monthly drop since March, on speculation growth is robust enough for the Federal Reserve to raise interest rates next year. BlackRock Inc., the world’s biggest money manager, forecast the first increase in borrowing costs for the second quarter of 2015.

Great Environment

Other reports this week may yield further clues on the strength of the U.S. economy. A private release may show U.S. employers hired more workers in June than in the previous month. The official jobs data is due Thursday, a day before the Independence Day holiday.

“It’s a great environment,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co. in Bryn Mawr, Pennsylvania, said in a phone interview. The firm oversees $7.4 billion. “You have a slowly broadening recovery. You have the Fed that’s going to remain accommodative. We’re soon to embark on the earnings season and we’re optimistic about that.”

Earnings for S&P 500 companies probably grew 5.2 percent during the second quarter while sales rose 3.2 percent, analyst estimates compiled by Bloomberg show. The forecasts are lower than they were at the beginning of April, when analysts projected earnings to rise 7.3 percent and sales to increase 3.7 percent.

China Data

In China, manufacturing expanded in June at the fastest pace this year, data today showed. The Chinese Purchasing Managers’ Index was at 51.0, the National Bureau of Statistics and China Federation of Logistics and Purchasing said, matching analysts’ median estimate and increasing from May’s 50.8. A similar index from HSBC Holdings and Markit rose to 50.7 from the previous month’s 49.4.

Markets in Hong Kong were closed today and the Shanghai Composite Index added 0.1 percent.

In Europe, all but two of the 19 industry groups in the Stoxx 600 advanced, with lenders and commodity producers leading gains.

BNP Paribas SA added 3.6 percent. France’s largest bank said a record $8.97 billion fine for breaking U.S. sanctions won’t derail its growth plans or force it to reduce its dividend.

Rio Tinto Group and BHP Billiton Ltd., the world’s two largest mining companies, gained more than 2.9 percent.

Bilfinger SE tumbled 19 percent after the German builder cut its full-year profit forecast. Kloeckner & Co SE, the German steel trader, fell 4 percent as Credit Suisse Group AG recommended selling shares of the German steel trader.

Pound, Dollar

The pound gained 0.3 percent to $1.7157 and 10-year gilt yields jumped four basis points to 2.71 percent. An industry index rose to 57.5 in June from 57 in May, Markit Economics said today. Economists forecast a decline to 56.8, based on the median estimate in a Bloomberg News survey.

“Economic indicators still suggest everything is in place for a recovery,” Dirk Thiels, head of investment management at KBC Asset Management NV, said by phone from Brussels. “The data in Europe, although not spectacular, is holding steady above the expansion level, and the U.S. looks like it’s going in the right direction.”

The Bloomberg Dollar Spot Index slid 0.1 percent for a fifth day of declines and earlier touched the lowest level since May 8.

The yen dropped against 14 of it 16 major counterparts, weakening 0.2 percent to 101.53 per dollar.

West Texas Intermediate oil reversed earlier gains to settle at a three-week low of $105.34. Crude fell 1.1 percent the previous three sessions. China is the biggest energy consumer.

Corn dropped 1.1 percent to $4.2075 a bushel and touched $4.20, the lowest since Jan. 10. Futures fell 4.9 percent yesterday when the U.S. government said domestic stockpiles will be larger than forecast.

Soybeans sank 0.8 percent to $11.475 to extend the biggest slump in five years.

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