By Stephen Kirkland and Michael P. Regan - May 2, 2012 3:10 AM GMT+0700
Stocks advanced, sending the Dow Jones Industrial Average to the highest level since 2007, and Treasuries fell as faster growth in U.S. manufacturing fueled optimism in the world’s biggest economy. Oil surged above $106.
The Dow rallied 65.69 points, or 0.5 percent, to close at 13,279.32. The Standard & Poor’s 500 Index rose 0.6 percent to 1,405.82, erasing most of its April loss, as benchmark indexes in the U.K. and Ireland gained more than 1 percent and Denmark’s rose 0.2 percent. Other European markets were closed for a holiday. Ten-year Treasury yields rose three basis points to 1.95 percent. The Australian dollar slid 1 percent to $1.0330 and 10-year note yields slipped as low as 3.53 percent after the nation’s central bank cut interest rates.
A pump housing waits to be shipped from Diversified Tooling Group's American Tooling Center Inc. facility in Grass Lake, Michigan, on April 17, 2012. Photographer: Jeff Kowalsky/Bloomberg
May 1 (Bloomberg) -- Christopher Low, chief economist at FTN Financial, talks about the Institute for Supply Management’s factory index for April, which climbed to 54.8 from 53.4 in March. Low speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)
May 1 (Bloomberg) -- Tony Morriss, head of interest-rate research at Australia & New Zealand Banking Group Ltd. in Sydney, talks about Australia's economy, central bank monetary policy, and the local currency. The Reserve Bank of Australia cut its benchmark interest rate by half a percentage point as inflation pressures abate, delivering a bigger-than-forecast reduction that sent the local dollar and bond yields tumbling. Morriss speaks with Mark Barton on Bloomberg Television's "First Look." (Source: Bloomberg)
May 1 (Bloomberg) -- Jerry del Missier, co-chief executive officer of corporate and investment banking at Barclays, talks about Europe's debt crisis and the region's bond markets. Del Missier, speaking with Erik Schatzker, on Bloomberg Television's "InsideTrack," also discusses the outlook for the French elections. (Source: Bloomberg)
May 1 (Bloomberg) -- Christopher Sheldon, chief investment officer at the Dreyfus Corp., talks about the outlook for the stock market and investment strategy. Sheldon, speaking with Betty Liu, Dominic Chu and Josh Lipton on Bloomberg Television's "In the Loop," also discusses U.S. Treasuries and corporate bonds. (Source: Bloomberg)
May 1 (Bloomberg) -- Shane Oliver, chief economist and head of investment strategy at AMP Capital Investors Ltd., talks about Australia's economy and central bank monetary policy. He speaks from Sydney with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
May 1 (Bloomberg) -- Bloomberg’s Trish Regan, Adam Johnson and Matt Miller report on today’s ten most important stocks including Delta Airlines, Pep Boys and Chesapeake Energy. (Source: Bloomberg)
A trader works on the floor of the New York Stock Exchange. Photographer: Michael Nagle/Bloomberg
All 10 of the main industry groups in the S&P 500 advanced after growth in American factory output unexpectedly accelerated in April to the fastest pace in almost a year, with the Institute for Supply Management’s index increasing to 54.8 from 53.4 and topping the median economist projection for a drop to 53. The report eased concern that manufacturing is slowing after data from the Federal Reserve Bank of Dallas and the ISM-Chicago trailed estimates yesterday.
“The spike in equity markets and reversal in bond markets following the report’s release underscores the nervousness” that had seeped into investors’ minds, Dan Greenhaus, chief global strategist at broker-dealer BTIG LLC in New York, wrote in a note to clients. “If manufacturing is not weakening as the regional surveys somewhat indicated, that would of course be supportive, in the immediate, of high risk asset prices.”
Greenspan’s Call
Former Federal Reserve Chairman Alan Greenspan said U.S. stocks offer good value and are likely to rise as corporate earnings increase over time.
“Stocks are very cheap,” Greenspan said today at the Bloomberg Washington Summit, citing very low price-earnings ratios. “There is no place for earnings to grow except into stock prices,” said Greenspan, who served as Fed chairman from August 1987 to January 2006.
Even after rallying 108 percent from its bear-market low in March 2009, the S&P 500 trades for 14.3 times its companies’ reported profits, data compiled by Bloomberg show. The valuation has been below the five-decade average multiple of 16.4 for two years.
Market Leaders
Gauges of energy, financial and commodity companies gained more than 0.5 percent to lead the 10 main S&P 500 industries today. Alcoa Inc., Bank of America Corp. and Intel Corp. rose at least 1.9 percent for the top advances in the Dow. Canada’s S&P/TSX index increased 0.3 percent.
Sears Holdings Corp. surged 15 percent after saying profit excluding some items was as much as $195 million in the first quarter and announcing plans to spin off its Hometown and Outlet stores into a new public company. P.F. Chang’s China Bistro Inc., an Asian-themed restaurant chain, rallied 30 percent after agreeing to be bought by Centerbridge Partners LP for $1.1 billion.
About three quarters of the S&P 500 companies that released results since April 10 have beaten profit projections, according to data compiled by Bloomberg. The Dow managed to post a 0.01 percent gain in April, marking a seventh straight monthly advance to match its longest streak since an eight-month rally in 1994-1995.
The S&P 500 fell 0.4 percent yesterday, snapping a four-day rally and extending the index’s first monthly loss of the year to 0.7 percent, after the ISM-Chicago’s business barometer fell to 56.2, lower than the most pessimistic forecast in a Bloomberg survey, and Spain’s economy entered a recession.
‘Luke Warm’ Recovery
“This is a luke-warm, milquetoast type of recovery,” Carl Riccadonna, a Deutsche Bank AG senior U.S. economist, told Bloomberg Television. “So there are going to be fits and starts along the way. But we’re expanding and we’re at trend growth as of last quarter.”
Thirty-year Treasury bonds also retreated today, sending their yield up three basis points to 3.15 percent. Rates on two- year notes were little changed at 0.27 percent.
For the first time since 2008, bonds were the only major investment class to provide positive returns in April amid renewed concern the global economy is slowing and as widening deficits in Europe threaten contagion.
Fixed-income assets -- from global government debt to junk bonds -- gained 0.7 percent last month including reinvested interest, according to Bank of America Merrill Lynch index data. The MSCI All-Country World Index of stocks lost 1.1 percent including dividends while the S&P GSCI Total Return Index of metals, fuels and agricultural products fell 0.5 percent. The U.S. Dollar Index dropped 0.3 percent.
Australia Rate Cut
The Australian dollar weakened against all 16 of its most- traded peers today, falling 0.6 percent versus the yen.
The Reserve Bank of Australia lowered its key rate to 3.75 percent from 4.25 percent, the biggest reduction in three years. RBA Governor Glenn Stevens and his board cut the overnight cash rate target to a two-year low of 3.75 percent from 4.25 percent, the deepest reduction in three years.
The half-point cut was “judged to be necessary in order to deliver the appropriate level of borrowing rates,” Stevens said in a statement today. In the next year or two, “inflation will probably be lower than earlier expected” and within the RBA’s target range of 2 percent to 3 percent, he said. The cut came after manufacturing data in Australia and the U.K. weakened and rose less than estimated in China.
‘Nice Surprise’
“It’s a nice surprise and it was the right move,” Nader Naeimi, a Sydney-based strategist at AMP Capital Investors Ltd., which manages almost $100 billion, said about the RBA decision. “Given the weakness that we’ve seen across the board in manufacturing and retail, a quarter point cut wasn’t going to be enough. They have done the right thing.”
The FTSE 100 advanced for the fifth time in six days as two shares gained for every one that dropped. Lloyds Banking Group Plc (LLOY) rose 8.3 percent as Britain’s biggest mortgage lender said first-quarter profit more than doubled, beating analyst estimates. BP Plc, Europe’s second-biggest oil company, dropped 0.8 percent after profit declined. Man Group Plc slid 5.5 percent as the hedge-fund manager reported $1 billion in client outflows in the first quarter.
Missing Estimates
Japan’s Nikkei 225 dropped 1.8 percent to a 10-week low as Sharp Corp., the nation’s largest producer of liquid-crystal displays, plunged 9.3 percent after forecasting a wider-than- estimated loss. Tokyo Electron Ltd. tumbled 8.3 percent after the chip-equipment maker said profit fell more than expected.
Natural gas rallied more than 3 percent, extending gains after rising 4.5 percent yesterday, as cooler weather forecast for next week may ease a glut and the Energy Department said production in the lower 48 states fell 0.6 percent in February. Copper added 0.4 percent to settle at $3.8435 a pound and oil climbed 1.2 percent to a one-month high of $106.16 a barrel.
Most Asian and European markets were closed for public holidays. China’s Purchasing Managers’Index rose to 53.3 from 53.1 in March, the statistics bureau and logistics federation said today. That’s the highest reading in a year and compares with the 53.6 median forecast in a Bloomberg News survey of 27 economists.
To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Michael P. Regan in New York at mregan12@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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