U.S. Stocks Gain While Treasuries Decline as Risk-Taking Returns

  • S&P 500 less than 1% from record, Nasdaq 100 at all-time high
  • Ten-year Treasury yields at six-week high before jobs data

Risk-taking has returned to global financial markets, as beaten-down energy shares and emerging markets help equities extend a 10-week rally, while high-yield debt issuance rises to the highest level in a month.

The Standard & Poor’s 500 Index pushed its rebound from an August rout to 13 percent, with energy producers advancing for a fifth day. Speculative-grade companies returned to the bond market while rates remain low. Developing-nation stocks and currencies gained. The dollar strengthened against the euro, while 10-year Treasury yields climbed to 2.22 percent. Oil resumed its rally.

“We’re back to where we were before that downturn took place, with reasonable earnings, modest growth and low interest rates,” said Bill Schultz, who oversees $1.2 billion as chief investment officer at McQueen, Ball & Associates Inc. in Bethlehem, Pennsylvania. “That’s a backdrop that’s allowing upward momentum to re-enter the market. All of the fears built into the market in August and September haven’t come to fruition.”

The S&P 500 is trading less than 1 percent from its May 21 all-time high as record-low interest rates and better-than-forecast corporate earnings stoke demand for U.S. equities. Recent data on manufacturing from America to Europe topped estimates, adding to evidence that unprecedented monetary stimulus is bolstering demand. Traders now see a better than 50 percent chance the Federal Reserve will raise rates this year.

Stocks

The S&P 500 rose 0.3 percent to 2,109.79 by 4 p.m. in New York. The Nasdaq 100 Index added 0.3 percent to a record, while the Dow Jones Industrial Average gained 0.5 percent after erasing its loss for the year on Monday. The rebound in U.S. stocks came as earnings from major tech companies topped estimates.

Energy shares led the advance in European and U.S. equities, sending oil producers to the highest levels since at least August as oil surged past $47 a barrel in New York. The sector was the worst performer during the summer swoon, falling 26 percent from the start of the year to the August trough. The group has rallied 23 percent since.

“When you see energy and cyclicals continue to rally like this it’s because they’re under-owned sectors,” said Michael Antonelli, an institutional equity sales trader at Robert W. Baird & Co. “They’re the sectors that were left for dead. When you get these pain-trade rallies like we’re seeing right now, those are the sectors that people go to because they’re under-owned.”

A Goldman Sachs Group Inc. index of the most-shorted stocks jumped 1.4 percent to bring its two-day rally to 4.7 percent.

Currencies

The euro retreated for the first time in four days versus the dollar, as investors sought clarity on whether the region’s central bank is indeed planning to expand its currency-debasing monetary stimulus program. President Mario Draghi said after markets closed that officials will revisit their policy stance in December to assess whether more economic support is required.

Fed Chair Janet Yellen addresses Congress on Wednesday, after indicating that policy makers will consider raising rates in December. Fed Vice Chairman Stanley Fischer and New York Fed President William C. Dudley also speak the same day.

The dollar gained 0.5 percent to $1.0964 per euro and rose 0.2 percent to 120.99 yen. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed after a three-day drop.

Emerging Markets

The MSCI Emerging Markets Index advanced for a third day, rising 1.4 percent as benchmark gauges in Russia, Indonesia and Taiwan climbed by more than 1 percent.

Colombia’s peso led gains in developing-nation currencies, strengthening 3.4 percent against the dollar after the central bank increased key rates by more than analysts had forecast. The Brazilian real rose to a three-week high amid speculation that an increase in mergers and acquisitions signals investors see value in Brazil.

Turkey’s lira retreated 0.2 percent after Monday’s 3.2 percent surge in the wake of parliamentary elections that ended a period of political uncertainty.

Bonds

Ten-year Treasury yields climbed four basis points, or 0.04 percentage point, to 2.22 percent. Odds the Fed will move on rates at its December meeting have climbed to 50 percent from 33 percent a month ago. The calculations are based on the assumption the benchmark will average 0.375 percent after the first increase, versus the current target range of zero to 0.25 percent.

Speculative-grade companies have finally found their window to return to the debt market. Just as long as they’re not too junky. After a tumultuous span that left the market largely shut during October, bankers have brought more high-yield debt the past three trading days than at any time during the previous month.

Commodities

Oil advanced on speculation U.S. refineries increased crude demand for a third week. West Texas Intermediate futures rose 3.8 percent to $47.90 a barrel in New York, while Brent crude added 4 percent to $50.72 in London. 

An Energy Information Administration report Wednesday will probably show inventories rose for a sixth week. Oil is near a bottom and global supplies look poised to close their gap with demand as investments in new production decline and consumption grows, according to Daniel Yergin, vice chairman at IHS Inc.

Gold for immediate delivery slipped 1.4 percent to $1,117.83 an ounce in a fifth day of losses. The metal is near a one-month low amid the speculation over a U.S. rate hike in December.

Mounting odds that the Fed will raise rates before the year is out sent silver prices toward their longest slump in two months, and investors sold the most since June from funds backed by the metal.

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