S&P 500 Rises to 10-Month High as Crude Rallies, Dollar Weakens

  • Greenback slides to lowest in a month on Fed rate bets
  • U.S. crude settles above $50 a barrel as commodities gain

Oil Prices Will Head Back Down, Here's Why

The S&P 500 Index rose to the highest level since July as crude settled above $50 a barrel and the dollar weakened to a one-month low on speculation that the Federal Reserve won’t rush to raise rates amid moderate growth in the world’s largest economy.

The U.S. equity benchmark edged higher for the fourth time in five days, climbing within 0.7 percent of a record before fading late as banks retreated. The Nasdaq Composite Index turned negative amid losses among biotechnology shares. Crude jumped above $50 a barrel, pushing energy shares in the S&P 500 to a seven-month high. The dollar dropped to a one-month low, boosting emerging-market stocks and currencies for a fourth day. Treasuries rose, sending the 10-year yield to 1.71 percent.

Investors looked past weakness in the labor market to focus on comments from Fed Chair Janet Yellen that indicate she’ll only raise rates gradually as growth remains moderate. With commodities now in a bull market and the weaker dollar helping earnings prospects for multinational companies, the S&P 500 has regained 15 percent since a February low, buoyed by signs that slowdowns in China and in Europe haven’t worsened.

“Equity markets have remained very resilient despite the bad payrolls figure that we got on Friday and it seems like sentiment’s in a pretty good place,” said Jon Adams, portfolio manager at BMO Global Asset Management in Chicago, where he helps oversee $217 billion. “It is significant that the S&P is so close to that May 2015 high but earnings are expected to pick up significantly later this year. We’ve seen weak earnings for four quarters in a row, so we really need to see some growth on the top line side to justify where we’re at right now.”

Stocks

The S&P 500 rose 0.1 percent to 2,112.24 at 4 p.m. in New York, the highest since July 22. The gains pushed its advance in 2016 to 3.3 percent as the index rallied back from the worst start to a year on record.

Energy shares jumped 2.2 percent to the highest since November. The group has rallied 14 percent this year, following a 24 percent rout in 2015. Biotechnology shares slid 0.9 percent for the biggest drop among 24 S&P 500 groups. The Nasdaq index fell 0.1 percent. Valeant Pharmaceuticals International Inc. tumbled after it cut its 2016 profit forecast, citing “significant disruption” over the past nine months.

MSCI’s global index rose 0.6 percent, set to close at its strongest level since April 20. The Stoxx Europe 600 Index climbed the most in two weeks. Germany’s benchmark DAX Index was among the best-performing western-European markets after data showed industrial output in the nation rebounded in April

The MSCI Emerging Markets Index rose 1.8 percent, the most since March 30 on a closing basis. The Philippine Stock Exchange Index rallied 1.5 percent . South Korea’s Kospi climbed 1.3 percent.

Commodities

The Bloomberg Commodity Index advanced 0.2 percent for a fifth straight gain, the longest run since March. It’s now at a seven-month high, having ended Monday more than 20 percent above its January low. A four-year bear market that pushed raw materials to the lowest level in a quarter century has drawn to an end after supply constraints drove a recovery from soybeans to zinc.

Gold slipped 0.1 percent, trimming this month’s advance to 2.5 percent, as traders anticipate rate hikes this year even if they are gradual. Copper fell 2.2 percent as data showed the biggest two-day increase in stockpiles since 2004, while aluminum declined 0.2 percent.

Oil extended gains from the highest close in more than 10 months in New York before the release of U.S. government data forecast to show crude stockpiles fell for a third week, trimming a glut. West Texas Intermediate crude oil advanced 1.4 percent to settle at $50.36. a barrel, having climbed 2.2 percent to a 10-month high on Monday.

Currencies

The dollar declined against most major currencies as traders took Yellen’s latest words to mean U.S. policy makers aren’t in a hurry to raise interest rates. The Bloomberg Dollar Spot Index slipped 0.4 percent, set for its weakest since May 11 based on closing prices.

The pound was 0.8 percent higher. Sterling has fluctuated in recent weeks, depending on which side of the EU referendum argument was gaining momentum.

Sterling’s climb comes after it dropped in early trading Monday, as three polls were released showing more Britons favor quitting the EU than staying. Two more surveys that came later the same day showed slim leads for the “Remain” camp.

Bonds

Treasuries rose, following European government debt higher, after the U.S. sold $24 billion of three-year notes. The yield on 10-year notes fell to 1.71 percent, after rising four basis points on Monday.

Tuesday’s note sale, the first of three Treasury offerings this week totaling $56 billion, comes after demand rose to the highest on record at a string of blockbuster auctions last month.

Goldman Sachs Group Inc. says there’s a 40 percent chance the Federal Reserve will raise interest rates in July -- almost double what the bond market projects.

The yield on 10-year German bunds fell four basis points to a record low of 0.048 percent amid a surge in demand for the safest fixed-income assets. Bonds advanced across Europe, led by the region’s higher-yielding sovereign markets. Spain’s 10-year yield fell four basis points to 1.48 percent, while that on similar-maturity Italian securities slipped three basis points to 1.44 percent.

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