‘Main Driver’
“Monetary easing has been a main driver of equity markets,” Fabrice Seiman, co-chief executive officer of Lutetia Capital in Paris, who helps oversee about $200 million, said in a phone interview today. “When those accommodative policies will be withdrawn, they will be withdrawn only gradually. Equities at the moment offer you capital appreciation but also a dividend yield.”
Dow Valuation
While the Dow has more than doubled in the four years since its bear-market low, its valuation remains about 19% less than the price-earnings ratio at the previous peak and about 14% below its 20-year average. Bulls say that’s a signal stocks have room to keep rallying, while to bears it shows a lack of confidence in earnings growth and concern over the Fed’s ability to continue spurring the economy. At 2.5%, its dividend yield is higher than the yield on 10-year Treasuries, which rose 2 basis points to 1.90% today.
American Express Co., Caterpillar Inc. and Home Depot Inc. have led the Dow’s rally since its 2009 low, climbing more than 275% as the economy recovered from the worst recession in seven decades. Hewlett-Packard., the largest personal computer maker, is the only stock still in the 30-company gauge to fall since March 9, 2009.
The Stoxx 600 climbed to its highest level since June 2008. A gauge of banks contributed the most to the equity benchmark’s rally as Standard Chartered Plc gained 3.2% after reporting pretax profit for 2012 that exceeded analysts’ estimates. Profit set a record for a 10th consecutive year. Glencore International Plc rose 5.7% after saying it will complete the takeover of Xstrata Plc by April 16. Xstrata added 6.8% after also posting net income that beat estimates.
Serco Group Plc surged 8.9% after the operator of London’s Docklands Light Railway increased its dividend by 20%.
Service, Retail Data
European equities also rallied after euro-area services output shrank less than initially estimated in February and retail sales rose the most in three years in January.
The yield on Portugal’s 10-year bond fell 23 basis points to 6.16%. Spain’s 10-year bond yield fell for a fifth day, dropping five basis points to 5.04%. German bund yields climbed three basis points to 1.45% amid reduced demand for Europe’s benchmark government debt.
European finance chiefs may next month commit to giving Ireland and Portugal more time to repay bailout loans, Economic and Monetary Affairs Commissioner Olli Rehn said yesterday.
The cost of insuring against default on corporate debt also declined, with the Markit iTraxx Europe index of credit-default swaps linked to 125 investment-grade companies falling four basis points to 112.6, the lowest in more than a week.
Australia’s currency rallied 0.5% to $1.0247 after the Reserve Bank kept interest rates on hold.
Commodities
The S&P GSCI gauge rose the most since Feb. 25 after falling 2.8% the past five days. West Texas Intermediate oil rose 0.8% to $90.86 a barrel after yesterday dipping below $90 for the first time this year. Brent crude traded in London jumped 1.5% to $111.73 as a pipeline system shut after a platform leak, boosting the European benchmark. Copper gained for a second day. China is the biggest buyer of energy and industrial metals.
China will keep its economic growth target at 7.5% for this year and plans a 10% jump in fiscal spending, the government said during the start of the National People’s Congress today.
The MSCI Emerging Markets Index rose 0.9%, snapping a two-day retreat. The Shanghai Composite Index rallied after falling 3.7% yesterday, its biggest decline since August 2011. India’s Sensex climbed 1.4%, the most in three months, while Russia’s Micex index added 1.4% and Brazil’s Bovespa gauge decreased 1%.
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