May 1 (Bloomberg) -- 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 87.98 points, or 0.7%, to 13,301.61 at 3:22 p.m. in New York. The Standard & Poor’s 500 Index rose 0.8% to 1,409.34, erasing its April loss, as benchmark indexes in the U.K. and Ireland gained more than 1% and Denmark’s rose 0.2%. Other European markets were closed for a holiday. Ten-year Treasury yields rose four basis points to 1.95%. The Australian dollar slid 0.9% to $1.0336 and 10-year note yields slipped as low as 3.53% after the nation’s central bank cut interest rates.
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.”
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 109% from its bear-market low in March 2009, the S&P 500 trades for 14.4 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.
Energy, financial and commodity companies led gains among the 10 main S&P 500 industries today. JPMorgan Chase & Co., Bank of America Corp. and Alcoa Inc. rose at more than 2% to lead the Dow’s rally. Canada’s S&P/TSX index increased 0.5%.
Sears Holdings Corp. surged 15% 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% 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% 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% yesterday, snapping a four-day rally and extending the index’s first monthly loss of the year to 0.7%, 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.
“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 five basis points to 3.16%. Rates on two- year notes were little changed at 0.27%.
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% 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% including dividends while the S&P GSCI Total Return Index of metals, fuels and agricultural products fell 0.5%. The U.S. Dollar Index dropped 0.3%.
Australia Rate Cut
The Australian dollar weakened against all 16 of its most- traded peers today, falling 0.4% versus the yen. The dollar reversed earlier losses versus the euro after the ISM report, strengthening 0.1% to trade at $1.3226 per euro.
The Reserve Bank of Australia lowered its key rate to 3.75% from 4.25%, 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% from 4.25%, 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% to 3%, he said. The cut came after manufacturing data in Australia and the U.K. weakened and rose less than estimated in China.
“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 rose 8.3% 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% after profit declined. Man Group Plc slid 5.5% as the hedge-fund manager reported $1 billion in client outflows in the first quarter.
Japan’s Nikkei 225 dropped 1.8% to a 10-week low as Sharp Corp., the nation’s largest producer of liquid-crystal displays, plunged 9.3% after forecasting a wider-than- estimated loss. Tokyo Electron Ltd. tumbled 8.3% after the chip-equipment maker said profit fell more than expected.
Natural gas rallied 3.8%, extending gains after rising 4.5% 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% in February. Copper added 0.3% to $3.8410 a pound and oil climbed 1.2% to $106.13 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.