Stocks decouple from bonds as S&P 500 gain defies yield drop

Capitulating bears and overseas buyers are drowning out every other concern for American stocks, pushing the Standard & Poor’s 500 Index to successive records even after the biggest drop in Treasury yields since June.

The Standard & Poor’s 500 Index closed at all-time highs twice last week and hasn’t traded more than 1.8% away from its record in the 23 days since March 11, according to data compiled by Bloomberg. The 2.1% advance over that period came as rates on 10-year government bonds tumbled 0.36 percentage point to as low as 1.7%. Plunges of that size coincided with losses of 4.6% for equities since 2010.

Bulls say U.S. shares are becoming less vulnerable to global shocks and will keep rallying as skepticism eases among professional investors. Gains such as the 1.2% advance on April 10 have been accompanied by even bigger jumps in companies with the most short interest. Bears say indiscriminate buying shows the rally is in its last stages and stocks will fall as earnings drop and Federal Reserve stimulus ends.

“New highs are bringing in buyers, people who have been on the sidelines,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management which oversees $180 billion, said by phone April 11. “People have been afraid of the stock market, they still remember 2008. But as time goes on and as equity prices go up they’ll continue get more comfortable and we’ll continue to see flows into equities.”

Successive Records

The S&P 500 advanced 2.3% last week, the biggest gain since January, and closed at successive records of 1,587.73 and 1,593.37 on April 10 and April 11. The benchmark index dropped 0.7% to 1,577.30 at 9:51 a.m. New York time today.

The gauge has climbed 11% this year as U.S. Fed Chairman Ben S. Bernanke pledged to hold interest rates near zero percent and maintain the program of bond purchases known as quantitative easing, or QE.

Gains were led by stocks that had fallen in 2013. First Solar Inc., the Tempe, Arizona-based power technology developer, has jumped 38% since sliding 13% in the first quarter. Cliffs Natural Resources Inc., the Cleveland-based iron-ore mining company, rallied 8.8% on April 9, its biggest increase since September. The shares were down 52% for 2013 before last week.

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