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.