(Updates today’s trading in seventh paragraph.)
Oct. 13 (Bloomberg) -- The threat of a U.S. bear market is receding after the Standard & Poor’s 500 Index rallied the most in 31 months, leaving the gauge about 1 percent away from a level where two advances have stopped since August.
The benchmark measure for American common equity climbed 1 percent yesterday, giving it a 9.8 percent increase over seven days, the most since March 2009, according to data compiled by Bloomberg. Gains were reduced in the last hour of trading yesterday after the S&P 500 climbed past 1,220, just above levels reached on Sept. 16 and Aug. 31 when declines began, the data show. The S&P 500 trimmed its advance to 12 points from 25.
Financial, energy and mining companies have led the advance since shares bottomed Oct. 3, rising at least 12 percent on signs Europe is containing its debt crisis. The lowest prices relative to earnings since 2009 and a shortage of better investment options have boosted equities, according to David Spika, who helps oversee $14 billion as an investment strategist at Westwood Holdings Group Inc. in Dallas.
“It wasn’t going to take much good news to drive the market higher,” Spika said yesterday in a telephone interview. “You had 30-year Treasuries yielding less than 3 percent, 10- year Treasuries yielding less than 2 percent, and stocks trading at 11 times earnings. You have to believe that at some point it’s not going to take much for investors to get back.”
Benchmark yields on 10-year U.S. Treasuries reached a record low of 1.6714 percent on Sept. 23 while 30-year yields slipped to 2.6922 percent on Oct. 4. The S&P 500 trades for 10.9 times 2012 profit estimates, compared with a five-decade average of 16.4 times reported earnings, Bloomberg data show.
The S&P 500 closed at a one-month high of 1,207.25 yesterday after European Commission President Jose Barroso called for the reinforcing of banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund. Minutes from the U.S. Federal Reserve’s Sept. 20-21 meeting showed some members argued for keeping more asset purchases as an option for stimulating the world’s biggest economy.
The S&P 500 slipped 0.3 percent to 1,203.66 at 4 p.m. New York time today.
The seven-day rally in the S&P 500 trimmed its loss since April 29 to 11 percent from more than 19 percent on Oct. 3. Financial institutions, energy producers and mining companies led the advance. Among those industries, 30 stocks jumped at least 20 percent, including Zions Bancorporation, Tesoro Corp. and Cliffs Natural Resources Inc.
Indexes for 37 out of 45 developed and emerging markets have tumbled 20 percent this year from their peaks, the common definition of a bear market. The S&P 500 was as much as 21 percent below its highest closing level of 2011 on Oct. 4 before a 12 percent rally through yesterday’s close began.
Stocks are unlikely to fall all the way back to the intraday low of 1,074.77 on Oct. 4, according to Michael Shaoul, chairman of Marketfield Asset Management in New York. That’s partly because levels of investor anxiety measured by the Chicago Board Options Exchange Volatility Index have retreated. The VIX slipped 4.9 percent yesterday to the lowest level since September, data compiled by Bloomberg show.
“The likelihood of a full retest of the correction lows now seems significantly less probable than a few days ago,” Shaoul wrote in an e-mail yesterday. “We say this not only because of the distance we have moved away from the 1,075 low, but also because we are finally seeing signs of a forcible unwind of the ‘fear trade.’”
Volume slowed in the past four days. Since U.S. equity losses intensified after the S&P 500 high on July 22, trading on days the index rises has averaged 9.02 billion, compared with 9.66 billion on days the measure fell, data compiled by Bloomberg show. Volume hasn’t exceeded 9 billion since Oct. 6.
“It’s a pretty panicky market,” Jason Brady, a managing director at Thornburg Investment Management Inc., who helps oversee about $73 billion from Santa Fe, New Mexico, said in a telephone interview yesterday. “There’s not a lot of liquidity out there, there’s not a lot of certainty in any pricing. Little changes in sentiment can move prices a lot.”
“I’m not sure the world has changed that much in the last five or six days that 10 percent is really a reasonable change in the price of those risky assets,” he said.
The S&P 500 has fluctuated between 1,074.77 and 1,230.71 since Aug. 5 as optimism about corporate earnings had alternated with concern Greece will default on its debt. Profits for S&P 500 companies probably rose 12 percent in the third quarter and are forecast to rise 18 percent to a record $99.86 a share in 2011, according to analyst estimates compiled by Bloomberg.
Daniel Genter, who oversees about $3.7 billion as president of Los Angeles-based RNC Genter Capital Management, said the S&P 500 faces further “resistance” at 1,250.
“It’s going to be a positive if we break through” 1,220, Genter said in a telephone interview yesterday. “The problem is that there is so much volatility, except for that downside support level at around 1,100, which we’ve tested several times, the upside is a little more nebulous just because it’s been all over the place.”
--Editors: Chris Nagi, Nick Baker
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