Bloomberg News

S&P 500 Rises to Record as Treasuries Gain, Dollar Slips

September 05, 2014

ECB President Mario Draghi

Mario Draghi, president of the European Central Bank, signaled at least 700 billion euros ($906 billion) in fresh aid for the euro-area economy. Photographer: Martin Leissl/Bloomberg

U.S. stocks rose, sending the Standard & Poor’s 500 Index to a record, as geopolitical tensions eased and investors speculated weaker jobs growth will prevent the Federal Reserve from raising interest rates sooner than anticipated. Treasuries gained and the dollar fell.

The S&P 500 rose 0.5 percent to 2,007.70 at 4 p.m. in New York, erasing losses for the week. The yield on five-year Treasury notes dropped 3 basis points to 1.69 percent. The Stoxx Europe 600 Index slid 0.4 percent, trimming a fourth weekly increase, while Russian equities rallied on a cease-fire agreement in Ukraine. The Bloomberg Dollar Spot Index declined 0.1 percent from a 14-month high. Oil futures retreated 1.2 percent.

American employers hired fewer workers than forecast in August and the jobless rate dropped because people left the workforce. Ukraine agreed on a cease-fire with pro-Russian separatists as U.S. and European leaders said they plan more penalties on Russia until it’s clear President Vladimir Putin is serious about peace.

“Today’s report somewhat contradicts the other data that says that the economy is getting stronger.” Alan Gayle, who helps oversee $49.5 billion as director of asset allocation for RidgeWorth Investments in Atlanta, said by phone. “It promotes the argument of keeping rates lower for longer. It supports Yellen’s more measured moving away from tightening.”

U.S. employers in August added the fewest number of jobs this year, marking a pause in the recent momentum of the labor market. The 142,000 advance in payrolls was weaker than the lowest estimate in a Bloomberg survey and followed a revised 212,000 gain in July, the Labor Department figures showed. The unemployment rate fell to 6.1 percent from 6.2 percent in July, reflecting a drop in joblessness among teenagers.

Interest Rates

The Fed is gauging the strength of the labor market as it winds down a bond-buying program and considers the timing of raising interest rates. Policy officials led by Janet Yellen next meet Sept. 16-17.

Increasing evidence that the economy is strengthening has fueled speculation the Fed may raise rates sooner than investors anticipate. Yellen has said the central bank will keep rates near record lows for a “considerable time” after bond purchases end.

Traders see a 41 percent chance Yellen will raise the target rate for overnight loans between banks to at least 0.5 percent by June, compared with 47 percent before the jobs report, federal funds futures show.

Equity Valuations

The S&P 500 gained 0.2 percent for the week, after climbing 3.8 percent in August, the biggest increase since February, and topped 2,000 for the first time. The equities benchmark trades at 16.8 times its members’ projected earnings, the highest valuation since the end of 2009.

Utility and energy companies jumped at least 0.7 percent to pace gains in the S&P 500 today. Gap Inc. dropped 4.2 percent after posting August same-store sales (GPS:US) that trailed analysts’ estimates. Michael Kors Holdings Ltd. slid 4.7 percent after its biggest shareholder prepared to sell its stake.

The index recovered from morning losses amid signs that global crises were easing.

A lasting truce in Ukraine would be the biggest breakthrough yet in the conflict, which has killed more than 2,600 people and soured Russia’s relations with its former Cold War foes to the worst in more than two decades. The cease-fire announcement comes as representatives of the 28 European Union governments met in Brussels today to consider tightening the economic sanctions that were imposed on Russia in July.

NATO Alliance

The U.S. forged an alliance of NATO allies who pledged to combat Islamic State militants in Syria and Iraq. Meanwhile, the Pentagon confirmed that the U.S. killed Ahmed Abdi Godane, the leader of the al-Shabaab insurgent group in Somalia, in an airstrike this week.

In Europe, basic-resources companies led declines in the Stoxx 600, which trimmed its weekly advance to 1.6 percent. The volume of shares changing hands was 8.9 percent greater than the 30-day average, according to data compiled by Bloomberg. London Stock Exchange Group Plc dropped 2.2 percent as Borse Dubai Ltd. is selling a stake.

Ireland joined nations from Austria to Finland with negative yields after the European Central Bank’s stimulus announcement yesterday. Ten-year securities rallied today, with Italy’s rate falling to a record low of 2.252 percent.

ECB Stimulus

While the Fed is trimming bond purchases, the ECB unexpectedly lowered its key interest rates and announced an assets-buying plan, as President Mario Draghi signaled at least 700 billion euros ($906 billion) of fresh aid.

The ECB reduced its three main interest rates by 10 basis points, seeking to revive inflation that languished at 0.3 percent last month.

The Bloomberg Dollar Spot Index fell after today’s jobs report, trimming its weekly advance to 0.8 percent. The euro was at $1.2951, up 0.1 percent, after dropping to $1.2920 yesterday, the lowest since July 2013. The currency has tumbled 1.4 percent this week, the most since January. The euro’s eight-week losing streak is the longest since the currency began trading in 1999.

The MSCI Emerging Market Index fell for a second day, losing 0.2 percent. The gauge has advanced for a fourth week, its longest rally since May. It’s up 0.9 percent in the period.

The Micex Index (INDEXCF) added 1.2 percent, extending this week’s rally to 5.3 percent. The ruble rose 0.2 percent.

Oil futures slid on the weaker jobs growth and the cease-fire agreement in Ukraine. West Texas Intermediate crude fell 1.2 percent to $93.29 a barrel. Prices are down 2.8 percent for the week.

To contact the reporters on this story: Cecile Vannucci in London at cvannucci1@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeff Sutherland, Garfield Reynolds


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