Stocks Extend Rally With Metals on Central Bank Pledges
Stocks rallied and industrial metals rose as global reports showed growth in manufacturing and central banks pledged to continue stimulus efforts. The dollar gained against all 16 of its major peers and Treasuries slumped.
The Standard & Poor’s 500 Index jumped 1.3 percent to 1,706.87 at 4 p.m. in New York, topping 1,700 for the first time. The MSCI All-Country World Index increased 1 percent, after advancing 4.7 percent in July. The yield on 30-year Treasuries jumped to the highest in two years. Copper added 1.5 percent and oil rose 2.7 percent to $107.89 a barrel. The dollar gained 1.6 percent against the yen, while the euro weakened.
European Central Bank President Mario Draghi said the central bank expects rates to remain low for an extended period. The Federal Reserve pledged yesterday to keep buying $85 billion in bonds every month as persistently low inflation could hamper the economy. U.S. jobless claims fell to the lowest in more than five years and manufacturing expanded at the fastest pace in more than two years. A Chinese government survey of purchasing managers unexpectedly rose in July, while a similar gauge for the euro-area also beat forecasts.
“The tone from central banks is that the economy is a little better, but has not reached the escape velocity yet without monetary support,” Michael Vogelzang, president and chief investment officer at Boston Advisors LLC, which manages $2.6 billion, said by phone. “As long as there is strong accommodative policy, the market can go up a lot. The market is driven by Fed policy and good corporate earnings.”
Three rounds of bond purchases by the Fed, coupled with improving earnings and economic growth, has helped propel the S&P 500 up more than 150 percent from its bear-market low in 2009. Speculation about the Fed’s monthly bond purchases has whipsawed stocks since May, when Chairman Ben S. Bernanke first indicated policy makers could begin reducing the stimulus this year if the job market continues to improve.
Investors poured $38.1 billion into exchange-traded funds listed in the U.S. last month, the most since December 2008 and the fourth-highest inflow ever, according to data compiled by Bloomberg since 2000. Almost $30 billion of the deposits went to funds that buy and sell American equities.
The benchmark index is trading at 15.5 times estimated earnings, compared with an average valuation of 13.9 times profit over the past five years, according to data compiled by Bloomberg. The S&P 500 capped a 5 percent monthly rally yesterday, its best performance in six months, as data showed the U.S. economy grew more than projected in the second quarter.
Among economic reports today, applications for unemployment insurance payments declined by 19,000 to 326,000 in the week ended July 27, the fewest since January 2008, from a revised 345,000 the prior week. The Institute for Supply Management’s factory index increased to 55.4, the strongest since June 2011, from 50.9 in the prior month. Readings above 50 indicate expansion.
Government data tomorrow may show U.S. employers added 185,000 people to payrolls in July, as the jobless rate fell to 7.5 percent from 7.6 percent, according to Bloomberg surveys of more than 80 economists.
“Central banks throughout the world remain accommodative and you do not want to fight the central banks,” said Phil Orlando, New York-based chief equity strategist at Federated Investors, which manages about $380 billion in assets. “All of the data from an economic standpoint is telling us that the economy is continuing to get better, the labor market is improving, and corporate earnings are coming in better than expected. So this market should continue to work higher.”
Some 40 companies in the S&P 500 (SPX) report results today. Of the 373 companies in the gauge to have already reported quarterly results, 73 percent have exceeded analysts’ profit estimates and 56 percent have beaten sales projections, data compiled by Bloomberg show.
Procter & Gamble Co. rose 1.7 percent after posting fourth-quarter profit that topped analysts’ estimates. Exxon Mobil Corp. slipped 1.1 percent as the biggest energy company by market value trailed analysts’ profit estimates by the most in more than a decade as returns from its fuel-making business plunged.
Yields on 30-year Treasury notes rose 12 basis points to 3.76 percent, touching the highest since August 2011. The yield difference between two- and 30-year securities reached 342 basis points. A steeper yield curve reflects diminishing demand from investors for longer-maturity bonds on speculation that growth and inflation will accelerate at a faster pace.
Benchmark U.S. 10-year yields rose 13 basis points to 2.71 percent.
The euro weakened 0.7 percent to $1.3207, dropping from a six-week high. Euro-area growth risks remain on the downside, Draghi said, after policy makers left the benchmark interest rate at 0.5 percent, in line with economist estimates.
The Stoxx Europe 600 Index climbed 1.2 percent, advancing for a fourth day to a nine-week high. The volume of shares changing hands was 8.3 percent greater than the 30-day average, according to data compiled by Bloomberg. The gauge surged 5.1 percent in July for the biggest monthly gain since October 2011 as companies from UBS AG to Publicis Groupe SA and Volvo AB reported results that beat estimates.
Lloyds Banking Group Plc, Britain’s biggest mortgage lender, climbed 8.1 percent today after reporting its first profitable six-month period in three years. Societe Generale SA, France’s second-largest bank, rallied 10 percent after profit more than doubled. Metro AG, Germany’s largest retailer, jumped 8.5 percent after earnings topped estimates as it lowered prices at its electronics unit to lure shoppers.
Sanofi (SAN), France’s largest drugmaker, tumbled 4.1 percent after cutting its profit forecast. Royal Dutch Shell Plc sank 4.7 percent in London as Europe’s biggest oil company said second-quarter earnings fell 20 percent.
German two-year notes were little changed, erasing an earlier advance, after Draghi’s comments. Yields were at 0.15 percent after earlier falling as much as four basis points.
The MSCI Emerging Markets Index rose for the first time in seven days, climbing 0.5 percent. The Shanghai Composite jumped 1.8 percent following the PMI data and after the government pledged to prevent growth slipping below a “reasonable” level. Russia’s Micex Index added 1.4 percent. Poland’s WIG20 Index rose 1 percent after manufacturing expanded in July for the first time in 16 months.
The MSCI Asia Pacific Index climbed 1 percent, as all of its 10 industry groups rallied. The gauge advanced 1.3 percent last month, the first gain since April. Japan’s Topix Index jumped 2.8 percent today.
West Texas Intermediate crude advanced the most in more than three weeks. Prices advanced 8.8 percent in July, the biggest monthly gain since August 2012.
Copper capped the biggest two-day rally since early May, climbing a combined 4.1 percent for the period. Lead added 1.7 percent and zinc advanced 0.6 percent.
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