U.S. stocks rose, sending the Dow Jones Industrial Average within 40 points of a record, amid optimism the Federal Reserve will continue to provide monetary stimulus. Commodities dropped on concern changes in China’s policies may slow growth and hurt the global recovery.
The Dow rose as much as 37 points to 14,127.10 while the Standard & Poor’s 500 Index advanced 0.4% to 1,523.45 after retreating 0.4% earlier. The S&P GSCI Index of commodities fell for a fifth day, the longest slump of the year, as oil dipped below $90 a barrel for the first time this year. Japan’s five-year rate slid two basis points to a record 0.095%. Italy’s 10-year yield rose amid concern the country may need to hold another election. U.S. Treasuries fell.
Financial stocks led gains as Federal Reserve Vice Chairman Janet Yellen said the central bank should press on with $85 billion in monthly bond buying while tracking possible costs and risks from the unprecedented program. Earlier losses in global stocks followed data showing China’s service industries grew last month at the slowest pace since September and the cabinet last week tightened mortgage rules to cool the property market.
“The Fed is going to be our friend for an extended period of time,” Michael Mullaney, chief investment officer at Boston- based Fiduciary Trust Co., which manages $9.5 billion, said by telephone. “And as the old adage goes, don’t fight the Fed,” he said. “Risk assets are going to do reasonable well as long as the Fed and other central banks have got their checkbooks open, which is what they have right now.”
Budget Talks
While President Barack Obama phoned Democratic and Republican legislators over the weekend, his aides and congressional leaders signaled automatic spending cuts would continue for weeks, possibly months. Both sides indicated that revisiting the reductions would begin after they resolve a looming confrontation over legislation that’s needed to keep federal agencies running beyond March 27, placing a premium on avoiding a government shutdown.
“It’s going to be choppy this month,” said Michael Mullaney, chief investment officer at Boston-based Fiduciary Trust Co., which manages $9.5 billion. “We have this March 27th debt ceiling limit coming up. The partisan rancor is probably going to be pretty active coming out of Washington for the next few weeks.”
Investors have reduced bearish stock bets to the lowest level since at least 2007 as the bull market in American equities begins its fifth year.
Short Interest
Short sales in the S&P Composite 1,500 Index fell to 5.6% of shares available for trading in February, down from a record 12% during the credit crisis and the lowest ever in data compiled by Bespoke Investment Group and Bloomberg starting six years ago. The last time the number of shares borrowed and sold short approached this level, the equity gauge lost 3.3% in the next three months.
Bulls say the capitulation by market bears shows the rally remains intact and that more money will flow into stocks after individuals sent $37.9 billion to mutual funds in January, the most since 2004. It also means a source of demand is diminishing, a traditional signal for caution in an aging bull market. Less than 1% of the shares of Ford Motor Co. and Cabot Oil & Gas Corp. have been borrowed and sold short by speculators hoping to return them to owners once prices fall.
Billionaire investor Warren Buffett said stocks will do well and the greater risk is to sit out the market’s rally.
‘Do Fine’
“American business will do fine over time. And stocks will do well just as certainly,” Buffett said in his annual letter to shareholders. “Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of ’experts,’ or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it,” he said, referring to Berkshire Hathaway Vice Chairman Charles Munger.
The S&P 500 Financials Index climbed and the consumer- discretionary gauge rose to a record to lead gains among the 10 main groups in the S&P 500 today. Home Depot Inc. and Citigroup Inc. paced the advance.
Airlines Rally
Delta Air Lines Inc. rose to a five-year high, pacing a rally in airlines, after increasing the lower end of its guidance for unit revenue. This will be Delta’s best first quarter in over 12 years, President Ed Bastian said today on a webcast of a presentation at a JPMorgan Chase & Co. transportation conference in New York. The NYSE Arca Airline Index rallied as lower oil prices also boosted the group.
Hess Corp. jumped after saying it will exit energy trading, marketing and retail businesses while doubling its dividend and announcing plans to buy back as much as $4 billion in stock. Yahoo! Inc. climbed after an analyst at Barclays Plc raised his rating on the company to overweight from equalweight.
Treasury 10-year yields added three basis points to 1.87%.
The Stoxx Europe 600 Index closed little changed after losing as much as 0.6% earlier. Commodity producers posted the biggest decline among 19 industry groups in the benchmark index, sliding 2.1%.
HSBC Holdings Plc retreated 2.5% as Europe’s largest bank said profit fell 5.6% in 2012 after taking a $5.2 billion charge for revaluing its own debt. Debenhams Plc plunged 15%, the most since 2008 on a closing basis, after predicting that pretax profit will drop in the first half of the year because of snow in January.
Repsol Gains
Repsol SA added 2.5% as Spain’s largest oil producer sold a 5.04% stake to Temasek Holdings Pte, Singapore’s state-owned investment company. The oil producer had said it would consider selling shares after Argentina’s government seized its YPF business last April.
European finance ministers were meeting in Brussels today, while a top aide to Italy’s Democratic Party leader Pier Luigi Bersani said the country may need to hold another election this year.
The drop in Italian 10-year bonds sent yields up nine basis points to 4.88%, near the highest in more than three months. German 10-year yields were little changed at 1.42% after falling to 1.39%, the lowest since Jan. 2.
The euro slipped 0.2% versus the yen and was little changed at $1.3021. The Aussie dollar tumbled as much as 0.9% to $1.0115, the lowest level since July. Norway’s krone strengthened against all 16 major counterparts.
The gain in Japanese bonds came after Haruhiko Kuroda, the nominee to be Bank of Japan governor, said he would do whatever is needed to end 15 years of deflation. The yield on the benchmark 10-year note fell four basis points to 0.61%.
Crude oil lost 0.6% to a two-month low of $90.12 a barrel in New York after dropping to as low as $89.33.
Commodities
“We have disappointing economic news out of China,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “There are problems out there for the economy and for oil demand; $90 is a critical level and we are poised to fall rather quickly down to $88.”
Wheat fell for the first time in five days, snapping the longest rally in six weeks, after a survey showed reserves will top a government forecast in the U.S., the world’s biggest exporter. Lead and zinc declined at least 0.9% as 15 of 24 commodities tracked by the S&P GSCI Index fell.
U.K. natural gas for delivery today jumped as much as 69% after exports from Norway into Europe’s biggest market decreased to a four-month low.
Emerging Markets
The MSCI Emerging Markets Index slid 1%. The Shanghai Composite Index slipped 3.7%, the most since August 2011, as property developers slumped after China’s Cabinet on March 1 called for higher downpayments and interest rates for second-home mortgages in some cities. The non- manufacturing Purchasing Managers’ Index fell to 54.5 in February from 56.2 in January, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday. Taiwan’s Taiex slipped 1.2%, South Korea’s Kospi lost 0.7% and Russia’s Micex Index fell 0.6%.
