Global stocks rose in July, beating bonds and the dollar by the most since at least January, while commodities had the best returns in 11 months as corporate profits topped analysts’ estimates and investors reversed bets on when the Federal Reserve will reduce stimulus.
The MSCI All-Country World Index (SPX) of equities in 45 markets climbed 4.8 percent, including dividends, as the Standard & Poor’s 500 Index rose to a record. Bonds of all types returned 0.3 percent on average, ending two months of losses, according to Bank of America Merrill Lynch’s Global Broad Market Index of 20,000 fixed-income securities. The Bloomberg Dollar Index slipped 1.4 percent as investors sought higher-risk assets. The S&P GSCI Total Return Index of 24 commodities climbed 4.9 percent, the most since August last year.
About $2.4 trillion was added to global share values in July as companies from Bank of America Corp. (BAC:US) to Apple Inc. and Daimler AG beat earnings estimates. Treasury yields dropped from a two-year high after Fed Chairman Ben S. Bernanke said July 17 that the end of bond purchases is not on a preset course, allaying speculation the central bank was preparing to phase out, or taper, stimulus as U.S. payrolls increased.
“When investors look around and believe that the global economy, including the U.S., is generally stabilizing and turning positive, they move more toward risk-on assets,” Sandy Lincoln, the Chicago-based chief market strategist in the U.S. with BMO Global Asset Management, which oversees about $120 billion, said in a telephone interview. Bernanke’s comments “calmed down the nerves on the bond side.”
Global stocks capped the best month since June 2012 as all but nine of the world’s 45 biggest equity markets advanced, according to data compiled by Bloomberg. The MSCI world index rose 1 percent as of 4 p.m. in New York today and the S&P 500 climbed above 1,700 for the first time.
Egypt’s EGX 30 Index advanced the most, jumping 14 percent, after the military ousted Islamist President Mohamed Mursi, triggering $12 billion of aid pledges from Persian Gulf countries and stoking bets the economy will recover once violent clashes subside. Chile’s Ipsa index slumped 7.4 percent for the worst performance as the central bank cut its growth forecast.
The S&P 500 finished the month up 5 percent, extending its advance for the year to 18 percent, as hiring, housing and manufacturing improved. About 73 percent of the companies that reported earnings during the month exceeded analysts’ profit forecasts, data compiled by Bloomberg show.
“Earnings have been decent,” Greg Woodard, a strategist in Fairport, New York, at Manning & Napier Inc., which has about $48 billion under management, said in a phone interview. “The corporate sector has done a good job.”
Bank of America, the second-biggest U.S. lender, rallied 14 percent in July as lower provisions for bad credit and cost cuts helped fuel a 63 percent increase in quarterly profit for the Charlotte, North Carolina-based company.
Apple (AAPL:US), in Cupertino, California, jumped 14 percent as the maker of the iPhone and iPad reported higher third-quarter sales and profit than analysts forecast, soothing concern increased competition and saturation in the smartphone market would drag the company into a prolonged slump.
Daimler, based in Stuttgart, Germany, surged 12 percent. The world’s third-largest maker of luxury vehicles forecast significant gains in second-half earnings as the western European auto market bottoms out and new models spur demand.
The rally has driven equity valuations to a three-year high, with the S&P 500 trading at 16.2 times reported operating earnings, data compiled by Bloomberg show. The benchmark index may end the year at 1,669, a 1 percent retreat from the closing level yesterday, according to the average of 17 estimates from strategists in a Bloomberg survey.
Average yields on bonds worldwide fell six basis points, or 0.06 percentage points, to 2.02 percent last month as of July 30, according to Bank of America Merrill Lynch’s Global Broad Market Index. The benchmark gauge, which tracks debt securities with a market value of about $44 trillion, has declined 0.9 percent in 2013.
Greek bonds were the best performers in July among the 26 sovereign markets tracked by Bloomberg and the European Federation of Financial Analysts Societies, rising 4.8 percent, as the country won the release of a 2.5 billion-euro ($3.3 billion) loan installment from international lenders. South African debt lost the most, with a 0.8 percent decline.
U.S. bonds fell 0.2 percent for the third straight monthly decline, according to the Bank of America Merrill Lynch U.S. Treasury Index. Speculation that the Fed will start scaling back its $85 billion of monthly bond purchases pushed 10-year Treasury yields to 2.75 percent on July 8, the highest level since August 2011. They were at 2.70 percent today.
The Fed said yesterday at the conclusion of a two-day meeting that persistently low inflation could hamper the economic expansion. The central bank pledged to keep buying $85 billion in bonds every month.
“Not fighting the Fed is a well-established market position,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, said July 30 in an interview. Englander previously worked at the New York Fed and the Organization for Economic Cooperation and Development. “The market is still saying we expect rates to go up.”
Yields on 10-year U.S. government debt may be little changed at 2.6 percent by the end of the year, according to the median estimate of 68 economists surveyed by Bloomberg News. They fell to a record 1.38 percent in July last year.
High-yield bonds returned 2.3 percent in July, according to the Bloomberg Global High Yield Corporate Bond Index as of July 30. Speculative-grade debt is rated below Baa3 by Moody’s Investors Service and BBB- by S&P.
The Bloomberg Dollar Index, which tracks the currency against 10 major peers, had the biggest monthly retreat since June 2012 as investors anticipated the Fed’s monetary policy will remain accommodative.
Poland’s zloty rallied 4 percent against the greenback, the most among the 31 most-traded peers. The Polish central bank adopted a neutral view on monetary policy after lowering its reference rate to a record, with Governor Marek Belka predicting a gradual recovery in the eastern European economy.
Malaysia’s ringgit weakened about 2.6 percent for the worst performance among emerging market currencies.
The U.S. dollar is forecast to strengthen 5 percent to $1.26 per euro by the end of the year and climb 7 percent to 105 yen, according to the median estimates from analysts in a Bloomberg survey.
Commodities rallied as gasoline, crude oil and gold prices posted their biggest advances since at least August 2012 to lead gains among the 24 raw materials tracked by the S&P GSCI index.
Gasoline futures surged 11 percent as unplanned refinery shutdowns by Irving Oil Corp. in New Brunswick, Philadelphia Energy Solutions on the U.S. East Coast and Korea’s National Oil Corp. in Newfoundland reduced fuel supplies. Gasoline at the U.S. pump, averaged nationwide, climbed 4 percent to $3.627 a gallon as of July 30, according to AAA.
Crude oil advanced 8.8 percent as inventories plummeted while fuel consumption increased. West Texas Intermediate crude cost $105.03 a barrel in New York, $2.67 below London-traded Brent. WTI rose above Brent July 19 for the first time since 2010 before losing ground at the end of the month.
U.S. crude stockpiles capped their biggest four-week drop in data going back to 1982, decreasing by 29.9 million barrels in the period ended July 19, according to the Energy Information Administration, the Energy Department’s statistical unit. Refineries used 16.2 million barrels a day of crude in the week ended July 12, the most since August 2005, according to the EIA.
“The month of July is spectacular for the oil bulls,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Demand has been pretty strong and refinery runs are high.”
The U.S. oil will average $98 a barrel this quarter, based on the median of 31 analyst estimates compiled by Bloomberg. Brent will average $105.33.
Gold jumped 7.3 percent to $1,313 an ounce as central banks from Russia to Kazakhstan expanded their bullion reserves amid speculation that continued monetary stimulus will boost demand for the precious metal as a hedge against inflation.
Russia’s gold holdings, the seventh-largest by country, climbed for a ninth straight month in June, while Kazakhstan and Ukraine were among nations that added bullion, the International Monetary Fund said July 25.
Gold prices have tumbled 22 percent this year, on pace for the worst annual drop since 1981, after some investors lost faith in the precious metal as a store of value following a 12-year bull market.
Corn fell 6.3 percent to $4.79 a bushel, dropping for a sixth straight month, the longest losing streak since November 1996. Farmers have boosted output after a drought cut 2012’s harvest by 13 percent and sent corn to a record $8.49 a bushel a year ago.
World production is expected to jump 12 percent to 959.7 million metric tons this year, according to the U.S. Department of Agriculture. Domestic output would surge 29 percent to a record 13.95 billion bushels in 2014, the USDA forecast.
“We are moving from a tight global supply to rising inventories,” said Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa. “You can’t keep producing more when demand is leveling off. We may be talking about sub-$3 corn” by next year, he said.
The back-to-back monthly gains in commodities helped the S&P GSCI index recoup more than half of a 6.2 percent plunge in April and May, while the July rally in stocks marked a rebound from the first monthly loss of the year for the S&P 500 and the biggest monthly drop for the MSCI world index since May 2012.
“What we saw in the month of July, and really the whole first half of the year, was a big improvement in investor risk appetite,” said Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $130 billion in client assets. “The market seems to be conveying a message that the future growth rate for the economy and earnings is going to be much better.”
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