Bloomberg News

Stocks, Commodities Rally as Treasuries Retreat on Jobs Growth

February 04, 2012

Feb. 3 (Bloomberg) -- Stocks surged, extending the best start to a year for the Standard & Poor’s 500 Index since 1987, and Treasuries slid as better-than-forecast growth in U.S. jobs bolstered optimism in the economy. Cocoa, lead and zinc led commodities higher while gold, silver and natural gas fell.

The S&P 500 increased 1.5 percent to 1,344.90 at 4 p.m. in New York and is up 6.9 percent in 2012. Yields on 10-year U.S. Treasury notes climbed 11 basis points to 1.93 percent, the biggest increase since November. The Dollar Index was little changed, erasing earlier gains. Oil rebounded from a six-week low, while gold and silver fell more than 1 percent.

The S&P 500 capped a fifth straight weekly gain, its longest streak in a year, and the Dow Jones Industrial Average climbed above its highest closing level since May 2008. The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey. The unemployment rate dropped to 8.3 percent, the lowest since February 2009. Equities extended gains after a gauge of service industries also showed faster-than-forecast growth.

“Wow,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “The jobs report confirms that this recovery is stronger than many people think. It speaks well to what earnings will be going forward and to what the possibilities are for equities. The riskier assets may turn out to be the ones with less risk.”

Cyclicals Lead

Gains in stocks today were led by companies that are most- dependent on economic growth, with gauges of financial, consumer-discretionary, energy and industrial and stocks climbing more than 1.7 percent for the best gains among the 10 main industries in the S&P 500. Bank of America Corp., Alcoa Inc. and Caterpillar Inc. rose more than 3 percent for the biggest gains in the Dow, which rallied 156.82 points, or 1.2 percent, to 12,862.23.

The S&P SmallCap 600 Index climbed 2.1 percent to the highest level since the gauge was started in 1989. The Nasdaq Composite Index rose 1.6 percent, reaching the highest level since December 2000.

The median projection in the Bloomberg survey called for payrolls to rise by 140,000. Revisions added a total of 60,000 jobs to payrolls in November and December. The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 15.1 percent from 15.2 percent.

ISM Beats

Equities extended gains after a private report showed service industries in the U.S. expanded in January at the fastest pace in almost a year, pointing to strength in the biggest part of the economy. The Institute for Supply Management’s non-manufacturing index rose to 56.8, topping the median forecast of 77 economists surveyed by Bloomberg News for a reading of 53.2.

The S&P 500 has rallied 22 percent since its 2011 low on Oct. 3 as the Federal Reserve pledged to keep interest rates low through 2014, economic data topped estimates and the European Central Bank provided cheaper lending to help banks.

The S&P 500 has recovered after plunging 19 percent between April 29 and Oct. 3. It’s now 1.4 percent away from surpassing its peak nine months ago and reaching the highest level since June 2008.

Earnings beat projections at about two-thirds of the 264 companies in the S&P 500 that reported results since Jan. 9, according to data compiled by Bloomberg.

Earnings Season

Profits in the S&P 500 are forecast to rise 9 percent this year to $104.68 a share, according to analyst estimates compiled by Bloomberg. At yesterday’s close, the index was trading at 12.7 times projected earnings in 2012 and 11.2 times predictions for 2013. The benchmark gauge for American equities has traded at an average price-earnings ratio of 16.4 since 1954, according to data compiled by Bloomberg.

“If the strong jobs market continues we would be inclined to increase our expectations for earnings,” Tim Hoyle, director of research at Radnor, Pennsylvania-based Haverford Trust Co., which manages $6 billion, said in a phone interview. “This jobs report favors cyclical stocks over defensive stocks. It makes you rethink your balance between cyclically sensitive sectors versus the defensive sectors.”

Canada’s S&P/TSX index of stocks capped a seventh straight weekly advance, its longest rally since 2009. The MSCI Emerging Markets Index gained 0.4 percent, for a weekly increase of 3.1 percent. The gauge has risen for five straight weeks, the longest rally since October 2010.

European Shares

The Stoxx 600 advanced 3.6 percent this week, the sixth gain in seven weeks and largest rally since the beginning of December. A gauge of U.K. services activity based on a survey of purchasing managers rose in January to 56, the highest since March, Markit Economics and the Chartered Institute of Purchasing and Supply said today.

Xstrata Plc and Glencore International Plc surged more than 13 percent this week after the world’s largest publicly traded commodities trader held talks to buy the Zug, Switzerland-based mining company. Temenos Group AG rallied 20 percent in the week as Misys Plc, the British maker of software for banks, said it has held merger talks with the Swiss company.

The yield on Portuguese 10-year bonds slid 138 basis points to 13.43 percent. Greek 10-year bonds rose, sending the yield down 18 basis points to 34.19 percent. Deutsche Bank AG Chief Executive Officer Josef Ackermann may travel to Athens this weekend for talks over a swap involving Greek debt with a face value of about 200 billion euros ($263 billion).

European Rescue Talks

A new rescue plan, which European officials and Greek creditors say may be wrapped up in coming days, includes a loss of more than 70 percent for bondholders in a voluntary exchange and loans likely to exceed the 130 billion euros now on the table.

The ECB is considering using its bond holdings to bolster Greece’s next rescue program and support efforts to contain the sovereign debt crisis, three euro-region officials said.

Under one plan, the ECB could sell its Greek bonds to the European Financial Stability Facility at the price it paid for them rather than accept a loss along with private creditors, two of the people said. The EFSF is against that proposal because it may stretch its capacity, the officials said.

Another plan is for euro-area central banks to give up profits or take losses on Greek bonds in their investment portfolios. Several options are under informal consideration and none have gained traction so far, two of the officials said. Spokespeople for the ECB and the EFSF declined to comment.

Commodities

Sixteen of the 24 commodities in the S&P GSCI Index advanced, sending the gauge up 1.3 percent. Cocoa, zinc and lead rallied more than 2.8 percent. Crude oil added 1.5 percent to $97.84 a barrel, snapping a five-day drop. Copper futures jumped 3.2 percent, the most in two months. Gold slumped the most in five weeks, falling 1.1 percent to settle at $1,740.30 an ounce. Silver lost 1.2 percent. Natural gas lost 2.2 percent on predictions for mild weather.

The Shanghai Composite Index rose 0.8 percent to extend a third straight weekly gain, its longest stretch in seven months amid speculation the central bank may lower reserve-ratio requirements. India’s Sensex increased for a fourth day, advancing 1 percent.

--With assistance from Lynn Thomasson in Hong Kong, Jonathan Burgos in Singapore, Claudia Carpenter, Daniel Tilles, Alexis Xydias, Ash Kumar and Andrew Rummer in London, Jana Randow in Frankfurt and Robert Willis in Washington. Editors: Michael P. Regan, Jeff Sutherland

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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