Bloomberg News

Panic Proves Fleeting in February as Stocks, Commodities Rally

March 01, 2014

Coffee Plants Affected by Drought

Coffee plants, some with brown leaves caused by a recent drought, stand at the Sao Gerardo farm in the state of Minas Gerais near Serra Negra, Brazil. Commodities climbed the most since July as a drought in Brazil triggered rallies in coffee and sugar. Photographer: Paulo Fridman/Bloomberg

For all the talk of a crisis at the start of the month, February ended up being the best period for global markets since July.

Stocks, bonds and commodities rose together in February for the first time in seven months, reversing January’s losses in equities and raw materials. The Standard & Poor’s 500 Index has closed at a record for two straight days, erasing losses from January spurred by concern economic turmoil would spread from emerging markets as the Federal Reserve began reducing stimulus efforts.

Commodities climbed the most since July as a drought in Brazil triggered rallies in coffee and sugar. Leaders of the world’s major economies pledged to maintain accommodative policies even as S&P 500 companies posted the biggest gain in quarterly earnings since 2011.

“Corporate America is having a little more confidence in the trajectory of the economy,” Darrell Cronk, the New York-based regional chief investment officer at Wells Fargo Private Bank, which oversees $170 billion, said by phone. “We still like equities relative to other asset classes.”

The benchmark gauge for American equities advanced 4.3 percent in February to 1,859.45, reversing its 3.6 percent loss from the previous month. Stocks around the world slid between Jan. 15 and Feb. 4 after Argentina unexpectedly devalued the peso, Turkey doubled interest rates and manufacturing growth slowed in China,

‘A Mission’

U.S. consumer confidence improved last month and orders for durable goods fell less than forecast in January, a sign manufacturing was beginning to emerge from the harsh winter. Other reports showed that the economy grew at a slower pace in the fourth quarter than previously estimated.

“Equities appear to be on a mission to trend higher and forge through concerns of negative economic readings,” Terry Sandven, chief equity strategist at Minneapolis-based U.S. Bank Wealth Management, which oversees $115 billion, said in a phone interview. “Like in 2013, the markets are proving to be remarkably resilient and look to continue in 2014.”

Stocks gained last week as investors speculated the Fed may change its strategy should the economy weaken and data showed improving consumer confidence. Retailers led the advance with a 4.5 percent rise, the biggest gain since 2012.

Target Corp. added 11 percent for the week as profit topped estimates and the company said it’s recovering from a data breach during the holiday season. Humana Inc. jumped 9.4 percent after proposed government cuts to the Medicare Advantage program were less than previously expected. EBay Inc. climbed 7.7 percent as Carl Icahn escalated his push to convince the online auction site to spin off PayPal.

Stock Indexes

The S&P 500 advanced 1.3 percent over the five days, closing at an all-time high. The gauge is up 0.6 percent this year after a 30 percent surge in 2013. The Dow Jones Industrial Average increased 218.41 points, or 1.4 percent, to 16,321.71. in the week.

Benchmark stock indexes in all 24 developed nations advanced in February, with gauges in Denmark, Greece, Ireland and Portugal rallying at least 10 percent to lead gains. Chile’s equity gauge jumped 8.1 percent and shares in Dubai rallied 12 percent as the MSCI Emerging Markets Index climbed 3.2 percent for its best advance since October after slumping 9.5 percent in the previous three months.

The MSCI All-Country World Index of stocks climbed 4.9 percent including dividends in February in its strongest advance since September. The Standard & Poor’s GSCI Total Return Index of metals, fuels and farm products gained 4.5 percent for the month. The Bank of America Merrill Lynch Global Broad Market Index returned 0.6 percent, including reinvested interest. The Bloomberg Dollar Spot Index fell 1.4 percent, the most in five months, as the U.S. currency weakened against all 16 major peers.

‘Vindication’

Improving profits fueled gains in stocks. Adjusted earnings per share beat analysts’ average estimates at 74 percent of the 488 companies in the S&P 500 that reported results for the latest quarter, according to data compiled by Bloomberg. Profits grew 8.3 percent for the group as sales increased 0.7 percent.

“For investors looking for fundamentals, February was a vindication,” John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York, said in a Feb. 26 phone interview. “The basic fundamentals that made the market go up last year are still in place. They may not be as sharply drawn, but they are still there.”

Coffee Rally

Commodities got a boost in February as Arabica coffee, the variety that Starbucks Corp. favors, surged 44 percent for its biggest gain since June 1994. Shares of Starbucks missed the stock rally, ending 0.2 percent lower in February and down 9.5 percent for the year.

As coffee drinkers braved U.S. snowstorms, plantations that grow the beans a hemisphere away endured the driest January in Brazil since 1954. The news was also good for sugar, which rallied 14 percent for its biggest monthly gain since 2011. Brazil is the biggest grower of both the bean and the sweetener.

The gauge of raw materials extended its increase since the end of December to 2.8 percent, rebounding from a 1.2 percent decline last year. It reached 5,003.83 intraday on Feb. 24, the highest since September.

Gold Gains

Gold, which plunged 28 percent in 2013 for its worst yearly decline since 1981, capped its first back-to-back monthly advances since August as political turmoil in Ukraine fueled demand for a haven asset. The precious metal added 6.6 percent in February, the best monthly gain since July, and reached a 16-week high of $1,345.52 an ounce on Feb. 26.

“Gold has probably been one of those commodities that surprised people on the upside,” Jason Lejonvarn, a strategist in London at Hermes Fund Managers Ltd., which oversees $1.6 billion in commodities, said by phone on Feb. 25. “Coffee’s moved an incredible amount over the past month. There’s so much uncertainty around how that drought is going to affect the actual coffee bean.”

West Texas Intermediate crude oil reached a four-month high in February as inventories at Cushing, Oklahoma, the futures’ delivery point, dropped and as cold weather drained supplies of distillate fuels. Prices gained 5.2 percent this month and climbed to as high as $103.80 a barrel on Feb. 19.

Polar Vortex

Natural gas futures soared to a five-year high in February as waves of arctic cold depleted U.S. stockpiles of the heating fuel to the lowest seasonal levels in 10 years. Prices jumped and sank with shifting weather forecasts and ended the month lower, making it the most volatile month for gas in more than four years.

“The buzz word for the year was ’polar vortex;’ I had never heard that word in my life and that added to the hysteria of the market,” said John Woods, president of JJ Woods Associates and a Nymex floor trader. “You had a big push where everyone wanted to jump in on it.”

Gas for next-month delivery surged as much as 42 percent to $6.493 per million British thermal units on Feb. 24, the highest intraday price since 2008, from a low of $4.563 on Feb. 10. Prices ended February 6.8 percent lower for the month at $4.609 per million BTU.

European Bonds

Bonds of all 14 euro-area nations tracked by the Bloomberg World Bond Indexes climbed in the month, as the potential for monetary stimulus from the European Central Bank boosted demand. Greek (GGGB10YR) securities were the month’s best performers, advancing 18 percent, while Spanish (BSPS) bonds climbed 1.3 percent, Italy (BITA) returned 1.7 percent and German debt added 0.5 percent, the indexes show.

The yield on Italy’s 10-year bond slid as low as 3.45 percent on Feb. 28, the least intraday since January 2006. Spain’s tumbled to as low as 3.475 percent, the lowest since February 2006. Greek (BGRE) and Portuguese (GSPT10YR) 10-year rates reached the lowest since 2010, while Ireland’s slid to a more than eight-year low. Germany’s 10-year yield dropped to 1.546 percent on Feb. 27, the least since July.

The pound climbed the most since November against the dollar amid speculation quickening economic growth will make the Bank of England the first major central bank to raise interest rates. The British currency rose 1.9 percent to $1.6745, and touched $1.6823, the most since November 2009.

Ukraine’s Hryvnia sank to a record low beyond 11 per dollar in February. Following violence that killed at least 82 people and led to President Viktor Yanukovych’s ousting last week, Ukraine’s new leaders are grasping for a financial lifeline as Russia weighs the fate of a $15 billion bailout it granted in December.

Bonds of all types rallied 0.6 percent on average as of Feb. 25, according to Bank of America Merrill Lynch’s Global Broad Market Index, even as 10-year Treasury yields ended the month little changed at 2.65 percent.

“We’ve had a very significant deterioration in economic data over the past month or so,” Jake Lowery, a money manager at ING U.S. Investment Management, which oversees about $200 billion, said Feb. 25 in a phone interview. “It would be a mistake to completely ignore that data on the basis of this cold weather effect. That decline in economic impulse should be natural positive for the U.S. Treasury market.”

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Nick Taborek in New York at ntaborek@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net


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