Dow Average Caps Longest Rally Since October as Treasuries Slip

  • S&P 500 ekes out 4th day of gains amid slowest day of 2016
  • Crude drives commodity rebound as industrial metals rally

Markets Weather U.S. Politics, Negative Interest Rates

After a day of fluctuations, U.S. stocks ended in the green with the Dow Jones Industrial Average rising a seventh day for its longest run of gains since October. Treasuries retreated as volatility across global financial markets slid amid signs central banks stand ready to support growth.

The Dow climbed 0.1 percent with the Standard & Poor’s 500 Index as deal activity bolstered consumer shares and Valeant Pharmaceuticals International Inc. saw its best day of trading this year. Treasuries declined, with 10-year yields jumping the most in more than a week, as a measure of inflation expectations over the next decade climbed to the highest level this year. Brazil’s Ibovespa extended gains as exporters benefited from an increase in commodity prices. U.S. crude climbed 1.2 percent as nickel advanced.

Markets have calmed after a volatile first six weeks of 2016, which saw U.S. equities post the worst start to a year on record. While policy easing by the European Central Bank and Bank of Japan and a forecast for a shallower trajectory of U.S. interest rate increases helped settle price swings, investor confidence remains fragile amid swings in commodity prices. The U.S. equity market saw its slowest trading day of the year ahead of Easter holidays later this week, while Japanese markets were closed for a holiday Monday.

“Markets have had a pretty tremendous month, we’re pretty far extended and certainly due for some pullback,” said Michael James, managing director of equity trading at Wedbush Securities Inc. in Los Angeles. “It’s been a pretty impressive run, but even with all that heavy lifting we’ve had, all it’s done is gotten to flat on the year.” 

The Bank of America Merrill Lynch Market Risk Index, a gauge tracking volatility expectations for equities, bonds, currencies and commodities, fell to minus 0.24 on Friday, its lowest level since Jan. 6.

Equities

The S&P 500 rose to 2,051.60 as of 4 p.m. in New York, while the Dow climbed to 17,623.87 points. The S&P 500 moved fewer than 11 points from the day’s high to its low, among the smallest intraday swings of the year. Technology and biotech shares led gains as the Nasdaq 100 Index added 0.4 percent, while small-cap stocks fell. 

Deals underpinned gains in the market, with Valspar Corp. surging 23 percent after Sherwin-Williams Co. agreed to buy the company for about $9.3 billion. Starwood Hotels & Resorts Worldwide Inc. advanced after accepting an improved bid from Marriott International Inc. valued at $13.6 billion. Valeant climbed 7.4 percent, the most since Dec. 16, amid a shakeup of the drugmaker’s board.

The S&P 500 has staged one of the biggest turnarounds in history, rebounding 12 percent from a Feb. 11 low amid a rally in crude prices and optimism that loose monetary policy will continue to support global growth. Energy and raw-material producers have led recent gains, rising to three-month highs last week after the dollar tumbled. Both groups fell on Monday.

Bonds

Yields on 10-year Treasury notes rose four basis points, or 0.04 percentage point, to 1.92 percent after dropping 11 basis points last week. Similar maturity German yields held at 0.21 percent, even after European Central Bank Governing Council member Francois Villeroy de Galhau told a conference in Paris that “the euro area is faced with deflationary pressures.”

Indian bonds extended their advance, sending 10-year yields down two basis points to 7.5 percent, the lowest close since July 2013. The government’s decision to cut rates on small savings plans has boosted speculation the country’s central bank will further ease monetary policy at its next meeting on April 5.

Currencies

The dollar rose against all but nine of 31 major currencies on Monday, adding 0.2 percent to $1.1245 per euro and 0.4 percent versus the yen, rallying from its weakest level since October 2014 against Japan’s currency.

While an index of the U.S. currency versus 10 major peers has dropped 3.3 percent this month, on track for its worst performance since April 2011, Goldman Sachs Group Inc., one of the world’s top 10 foreign-exchange traders, is holding fast to its bullish dollar stance. The Bloomberg Dollar Spot Index gained 0.3 percent

The pound fell from a one-month high versus the dollar, sliding 0.7 percent to $1.4369 after Pensions Secretary Iain Duncan Smith resigned from the cabinet just three months before a referendum on Britain’s membership of the European Union.

Emerging Markets

The MSCI Emerging Markets Index climbed 0.3 percent after entering a bull market on Friday. China’s Shanghai Composite Index rose to a two-month high after policy makers loosened controls on margin lending in place since last year’s rout. Inflows into exchange-traded funds that buy emerging-market assets also increased to the most in almost two years as the odds of an aggressive U.S. rate policy receded.

Analysts that cover Brazil reduced their 2016 economic growth forecast for the ninth straight week as a political crisis grips the nation and further dims the outlook for a turnaround. The five-week rally in Brazilian stocks has left valuations approaching their highest levels on record relative to emerging-market peers.

The ruble rebounded as Goldman Sachs and Danske Bank A/S raised forecasts for the currency, predicting further gains in its world-beating rally as oil prices stabilize and Russia holds back from cutting benchmark rates.

Commodities

The Bloomberg Commodity Index, which measures returns on raw materials, advanced less than 0.1 percent as oil rose with copper, nickel and zinc. Gold and U.S. natural gas prices declined.

West Texas Intermediate futures settled at $39.91 a barrel in New York after falling 1.9 percent on Friday. Oil markets have recouped their losses this year after slumping to a 12-year low last month on speculation stronger demand and falling U.S. output will ease a global surplus.

Gold futures declined for the sixth time in seven sessions as the rebounding dollar eroded the metal’s appeal as an alternative investment. Bullion for April delivery slid 0.8 percent to settle at $1,244.20 an ounce. Copper futures rose 0.4 percent to $2.2925 a pound.

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