S&P 500 Tops 2,000 as Dollar, European Bonds Rise on ECB
The Standard & Poor’s 500 Index (SPX) briefly topped 2,000 for the first time as stocks rallied on deals speculation and prospects for increased European stimulus. The dollar climbed to an 11-month high and German two-year note yields dropped below zero.
The S&P 500 rose 0.5 percent to 1,997.95 at 4 p.m. in New York, paring gains in the afternoon after climbing to as high as 2,001.95. The dollar appreciated 0.4 percent to $1.32 per euro, its strongest level since Sept. 9. The Stoxx Europe 600 Index added 1.1 percent to the highest since July. German two-year note yields slid to the lowest since 2012. Yields on 10-year Italian and Spanish bonds dropped to all-time lows as did Belgian two-year notes. Oil fell to a seven-month low.
European Central Bank President Mario Draghi and Bank of Japan chief Haruhiko Kuroda raised the likelihood of measures to support growth during a meeting of central bankers. Federal Reserve Chair Janet Yellen said slack remains in the labor market, though rates could be raised sooner than anticipated should progress continue to surpass estimates. Burger King Worldwide Inc. jumped 20 percent on talks to buy Tim Hortons Inc. in a tax-saving move. New-home sales in the U.S. fell unexpectedly in July.
“2,000 is a pretty significant number from psychological and financial points,” Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. “We’re seeing the continuation of a strong momentum that occurred in July. Perhaps we might reach a little bit overbought status, and it looks like the index is going to take a breather there.”
The S&P 500 rose 1.7 percent last week for its biggest weekly gain since April. The benchmark index has risen almost 100 points since its low during trading on Aug. 7, climbing on nine of 12 days to erase the 3.9 percent drop that began on July 24. The advance has added more than $900 billion to equity prices amid speculation central banks will keep interest rates low and as concern over crises from Ukraine to Iraq eased.
With the 2,000 milestone, the S&P 500 is building on a rally with a velocity approaching the strongest stretch of the 1990s dot-com bubble. Investors who owned the index when the advance began on March 9, 2009, are sitting on price appreciation of 195.5 percent, or 24.5 percent a year on average, according to data compiled by Bloomberg. That compares with a gain of 236 percent, or 27.1 percent annually, over an equal amount of days ending on March 24, 2000.
Similarities to the technology-fueled gains of two decades ago are multiplying with the bull market approaching three years without a decline of 10 percent or more. In one respect the two periods are different. The dot-com bubble peaked with the S&P 500 trading at close to 30 times annual earnings of its companies, while the valuation is about 19 times now, data from S&P Dow Jones Indices show.
“If you look at the valuations then versus now, it’s night and day,” Walter Todd, who oversees about $1 billion as chief investment officer for Greenwood, South Carolina-based Greenwood Capital Associates LLC, said in a phone interview. “This time around, the move we’ve seen has been much broader. The implication is that we have more sustainable circumstances now than we had then.”
Data from housing to manufacturing last week indicated that the U.S. economy continues to recover.
The pace of new-home sales fell to the slowest in four months in July, data showed today. Housing has advanced in fits and starts this year, buffeted by tight credit and slow wage growth.
“We have this upside with the economy improving and the interest rates falling,” Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. “Falling rates and the rising economy is the perfect backdrop for the market.”
Financial shares rallied. Morgan Stanley climbed to the highest since 2009 and JPMorgan Chase & Co. and Goldman Sachs Group Inc. added at least 1.3 percent for the biggest gains in the Dow Jones Industrial Average.
Equities also rose amid merger activity. Burger King, the second-largest U.S. burger chain, is in talks to buy Tim Hortons and move its headquarters to Canada, becoming the latest American company seeking to relocate to a lower-tax country. Tim Hortons, the seller of coffee and doughnuts, jumped 19 percent.
InterMune Inc. surged 35 percent after Roche Holding AG purchased the biotechnology company for $8.3 billion.
Almost 17 shares advanced for every one that declined in the Stoxx 600, while trading was 64 percent lower than the 30-day average with the U.K. market closed. Banks gained the most, with BNP Paribas SA advancing 2.4 percent and Banca Monte dei Paschi di Siena SpA climbing 5.8 percent.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, climbed 0.2 percent today, extending last week’s 0.9 percent advance and headed for the highest close since Jan. 31. The shekel dropped to a nine-month low against the dollar after Israel’s central bank unexpectedly cut interest rates.
The euro weakened against 13 of its 16 major counterparts. ECB policy makers “stand ready to adjust our policy stance further” and will use all available instruments to “ensure price stability over the medium term,” Draghi said on Aug. 22 in Jackson Hole, Wyoming.
BOJ Governor Kuroda said at the gathering that his bank’s monetary policy was “having its intended effect” and that central banks must fight deflation by any and all means.
“The messages from Yellen and Draghi solidify a market view on policy divergence between the Fed and the ECB,” said Peter Rosenstreich, a chief foreign-exchange analyst at Swissquote Bank SA in Gland, Switzerland. “There were some holdouts in the market who didn’t quite believe that Yellen is ready for a tighter policy and Draghi is ready to put forward any significant broad-based purchases. What we heard over the weekend is that yes, these are on the table.”
The Italian 10-year rate dropped as much as 14 basis points to 2.44 percent, the lowest since at least 1993. German two-year yields fell four basis points to below zero, while Belgian two-year yields also slid below zero for the first time.
The 10-year U.S. Treasury rate dropped 2 basis points to 2.39 percent. The notes offered the highest yields over similar maturity German bunds in 15 years with the Fed and ECB outlining diverging paths on monetary policy.
The Chicago Mercantile Exchange started electronic futures trading after a technical issue halted markets for as long as four hours. Trading in futures in Chicago, except for Malaysian stock-index derivatives, was delayed, CME Group Inc. said on its website. CME’s Globex resumed at 9 p.m. in Chicago yesterday, it said.
The MSCI Emerging Markets Index added 0.1 percent. Russia’s Micex advanced 0.6 percent. VTB Group rose 2.1 percent after the government said it will buy shares in the nation’s second-biggest lender.
Russian President Vladimir Putin is scheduled to meet tomorrow with his Ukrainian counterpart Petro Poroshenko during trade talks in Minsk, Belarus. Poroshenko said yesterday military spending would increase by more than 40 billion hryvnia ($3 billion).
Russia plans to send a second convoy loaded with humanitarian aid to Ukraine, Foreign Minister Sergei Lavrov said today, after the first delivery sparked international condemnation by crossing the border without authorization.
The Shanghai Composite Index dropped 0.5 percent, while the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong climbed 0.5 percent. The S&P BSE Sensex rose less than 0.1 percent, paring earlier gains. Metal producers declined after the highest court said giving away coal mines to companies including Tata Steel Ltd. and Jindal Steel & Power Ltd. since 1993 was illegal. Jindal lost 14 percent and Tata slid 4.8 percent.
Gold dropped 0.1 percent to $1,278.9 an ounce after advancing 0.3 percent on Aug. 22, its first increase in six days.
West Texas Intermediate oil fell 0.3 percent to the lowest since January amid speculation that supplies at Cushing, Oklahoma, the delivery point for the contract, climbed a fourth week. Brent crude climbed 0.4 percent on concern Libyan turmoil will curb the country’s oil output.
To contact the editors responsible for this story: Stephen Kirkland at firstname.lastname@example.org; Justin Carrigan at email@example.com; Lynn Thomasson at firstname.lastname@example.org Jeff Sutherland, Justin Carrigan