U.S. Stocks Advance With European Bonds Amid Bank Bailout
The Standard & Poor’s 500 Index rebounded from the worst week since 2012, as Berkshire Hathaway Inc. topped earnings estimates and investors weighed geopolitical developments. European bonds advanced and the euro slid after Portugal bailed out Banco Espirito Santo SA.
The S&P 500 jumped 0.7 percent at 4 p.m. in New York for its biggest gain since July 18. Anadarko Petroleum Corp. and Noble Energy Inc. increased more than 4.8 percent to lead a rally among energy companies. Portuguese 10-year yields slid eight basis points to 3.62 percent. The euro traded at almost its lowest level versus the dollar since November. Commodities rebounded after a four-day decline as copper futures rose the most in a week.
About $1.2 trillion was wiped from the value of global equities last week amid concern that a default by Argentina and the crisis at Espirito Santo would constrict credit markets as the Federal Reserve debates the timeline for interest-rate increases. Ukraine’s defense minister said today he’s confident victory over pro-Russian separatists is close. Israel’s military said it was on course to destroy within hours all known tunnels dug by Hamas guerrillas in the Gaza Strip. Warren Buffett’s Berkshire Hathaway Inc. rose 3.1 percent to an all-time high, after earnings topped estimates.
“We’re seeing a reprieve of geopolitical concerns, which is modestly emboldening risk-taking for today,” Chad Morganlander, a money manager at St. Louis-based Stifel, Nicolaus & Co., which oversees about $160 billion, said in a phone interview. “The economy overall is moving forward with better-than-expected earnings, and we see an upward bias continuing over the next couple of months.”
The S&P 500 has fallen 2.5 percent from an all-time high on July 24. It sank 2.7 percent last week, the most since June 2012 as companies around the globe including Exxon Mobil Corp. (XOM) posted disappointing results, Argentina defaulted and Espirito Santo was ordered to raise capital.
Treasury 10-year note yields were little changed at 2.49 percent today. The difference between yields on Treasury five-year notes and 30-year bonds reached the widest in two weeks as investors questioned how quickly the Fed will raise rates.
Concern has grown that the improving U.S. economy may force the Fed to raise its benchmark rate sooner than expected. Data last week showed U.S. gross domestic product expanded at a 4 percent annual pace in the second quarter, while a separate report indicated employers in the U.S. added more than 200,000 jobs for a sixth straight month in July.
Among stocks moving today, energy companies soared 1.6 percent after Colorado Governor John Hickenlooper said at a news conference that he wants anti-fracking initiatives removed from a voting ballot. The energy gauge rebounded after falling 4.1 percent last week, the biggest five-day drop since June 2012.
Berkshire Hathaway Class B shares advanced as a rebounding U.S. economy boosted the value of the company’s stock portfolio and helped propel growth at the dozens of companies it owns. Michael Kors Holdings Inc. slid 5.9 percent, the most in the S&P 500, after the company said profitability will decline this year.
Some 72 companies including Walt Disney Co. and Time Warner Inc. report earnings this week. Of the companies that have posted results so far this season, 76 percent beat earnings estimates and 65 percent exceeded sales projections, according to data compiled by Bloomberg.
Spanish and Italian government bonds rallied with Portuguese debt after the Bank of Portugal yesterday unveiled a 4.9 billion-euro ($6.6 billion) bailout that will leave Espirito Santo shareholders and junior bondholders with losses, while sparing senior creditors and unsecured depositors.
Spain’s 10-year yield fell six basis points to 2.50 percent, approaching the record-low 2.45 percent set on July 30. The rate on similar-maturity Italian debt dropped six basis points to 2.70 percent.
Instead of forcing losses on unsecured depositors and other senior creditors, as was required of Cyprus, Portugal is following the gentler model established by Spain’s financial-sector rescue, prompting a rally in the country’s stocks and bonds. The benchmark PSI-20 stock index rose 1 percent, while Banco Comercial Portugues SA, the country’s biggest bank by market value, rallied 6.1 percent.
“They will only bail in as much as necessary,” Carsten Brzeski, chief economist at ING-DiBa AG, said in a telephone interview. “It would have been a very bad signal and probably even more disturbing if they had bailed in depositors now.”
The Stoxx Europe 600 erased an advance today to finish 0.2 percent lower as real estate companies fell, offsetting reduced concern about the region’s most indebted lenders. Immofinanz AG slid 2.7 percent after the Austrian property developer reported annual profit that missed projections. HSBC Holdings Plc gained 0.9 percent after reporting lower provisions for bad debt in the first half.
The euro was little changed at $1.3421 after touching $1.3367 on July 30, its lowest level since Nov. 12. Europe’s common currency slid 3.2 percent in the past three months as the European Central Bank cut interest rates to spur inflation that slowed in July to the weakest in almost five years. The ECB meets this week.
Investors have also been watching developments in Ukraine and the Middle East. The offensive in Gaza, which Israel says is intended to quash rocket salvoes fired by militants and destroy cross-border tunnels used to stage attacks, has been the deadliest in the territory since Israeli settlers and soldiers left in 2005.
Ukraine’s armed forces are pressing ahead with their offensive as the U.S. and the EU have increased pressure on Russian President Vladimir Putin over his backing for the rebels with an expansion of sanctions.
The MSCI Emerging Markets Index added 0.9 percent, advancing for the first time in four days. Chinese stocks rose amid speculation the government is accelerating its reform of state-owned enterprises.
The Bloomberg Commodity Index (BCOM) of 22 raw materials rose 0.7 percent. Soybean futures gained 2 percent, the most in a week, to settle at $10.795 a bushel in Chicago on concern that dry Midwest weather is eroding crop quality just as demand increases for supplies from the U.S.
West Texas Intermediate crude rebounded from a six-month low on rising tension in Iraq and speculation last week’s 4.1 percent drop was excessive. WTI for September delivery added 0.4 percent to settle at $98.29 a barrel on the New York Mercantile Exchange.