Stocks and commodities rose in October, Treasuries fell for the first time since March and the dollar weakened to a 15-year low against the yen as investors bet the Federal Reserve will act to boost growth and corporate earnings topped estimates.
The MSCI World Index of shares in developed nations gained 3.7 percent, while the MSCI Emerging Markets Index advanced 2.8 percent. The Thomson Reuters/CRB Index of commodities climbed to a two-year high as cotton, corn, soybeans and gold rallied. Treasuries lost 0.4 percent, Bank of America Corp. indexes showed. The dollar sank to 80.39 yen, falling for a sixth straight month in the longest losing streak since January 2004.
Fed policy makers meet Tuesday and Wednesday to consider stimulating the world’s largest economy through an asset-purchase technique known as quantitative easing. Central bankers are concerned that growth is too slow to curb U.S. unemployment that’s stuck near the 26-year high reached in October 2009. The Standard & Poor’s 500 Index built on its biggest September rally since 1939 as more than 70 percent of companies beat profit forecasts for the sixth straight quarter, the longest stretch since at least 1993.
“The Fed is trying to shove money out the risk spectrum, and I think it’s happening,” said William Greiner, chief investment officer at Scout Investment Advisors in Kansas City, which manages $9.5 billion. “Business people are starting to get the sense that a double-dip recession is not going to happen for the time being. It wasn’t more than 90 days ago that people were really concerned.”
The central bank has asked bond dealers and investors for projections of central bank asset purchases over the next six months as it seeks to gauge the possible impact of new efforts to spur growth. The Fed has kept the benchmark interest rate at between zero percent and 0.25 percent since December 2008 and bought $1.7 trillion in Treasuries and mortgage-backed assets.
Estimates for the size of the Fed’s next round of asset purchases range from $1 trillion at Bank of America to $2 trillion at Goldman Sachs Group Inc. Economists at both firms agree the Fed may start by announcing a $500 billion plan.
Treasury Inflation Protected Securities maturing in five years were sold at a negative yield for the first time ever at a U.S. debt auction in October, signaling bets that Fed Chairman Ben S. Bernanke will be successful in preventing deflation and the risk of another recession.
The yield “certainly suggests investors are starting to think about inflation as a concern,” said Sandy Lincoln, chief investment strategist at M&I Investment Management Corp. in Milwaukee, which oversees about $30 billion.
The Oct. 25 sale of $10 billion of the securities drew a yield of negative 0.55 percent, matching the average forecast in a Bloomberg News survey of 7 of the Fed’s 18 primary dealers.
Surging asset prices helped spur debt and equity offerings.
Sales of junk bonds in the U.S. set a record for October as returns topped investment-grade debt and more borrowers were raised than cut.
Fortescue Metals Group Ltd. and Calpine Corp. led speculative-grade companies issuing $33 billion of debt this month, according to data compiled by Bloomberg. The notes have gained 2.32 percent on average in October, compared with a loss of 0.16 percent for high-grade securities, Bank of America index data show. Not since March have high-yield, high-risk securities outperformed by such a wide margin.
October was the busiest month for U.S. initial public offerings in almost three years. Hong Kong-based greenhouse vegetable producer Le Gaga Holdings Ltd. completed the month’s 21st IPO, the most since 22 in December 2007, according to data from Bloomberg and the Securities and Exchange Commission.
AIA Group Ltd., offered last week by American International Group Inc. in a $20.5 billion IPO in Hong Kong, had the biggest initial public offering in the city’s history. TGLT SA, an Argentine real-estate developer, completed the first IPO in Buenos Aires in more than two years yesterday.
“The market manages to consistently catch most people off guard,” said Eric Mintz, who helps oversee $3.3 billion at Eagle Asset Management in St. Petersburg, Florida. “The consensus heading into September and October was for a continued correction as we had seen in August. The gains clearly surprised a lot of investors as the liquidity in the market is pushing up asset prices across the board.”
The gain in equities followed companies from Alcoa Inc. to Google Inc. and Citigroup Inc. beating the average analyst profit estimate, according to data compiled by Bloomberg. The S&P 500 climbed 3.7 percent during the month and reached 1,185.64 on Oct. 26, the highest level since May 3.
King Pharmaceuticals Inc. soared 42 percent, the biggest October advance in the S&P 500, after Pfizer Inc. agreed to buy the maker of abuse-resistant narcotics for $3.6 billion. Walt Disney Co., the owner of amusement parks as well as television networks ABC and ESPN, rallied 9.1 percent to lead gains in the 30-stock Dow Jones Industrial Average.
Cotton futures surged 23 percent to $1.2526 a pound in New York, the biggest monthly advance since June 2007, amid concern the weather may have damaged crops in China, the world’s biggest user. The fiber rose to a record $1.305 on Oct. 26.
Corn futures rose 17 percent, the most since June 2008, to $5.82 a bushel in Chicago as speculation mounted that the U.S. Department of Agriculture may cut its output estimate for the domestic crop again.
Soybean futures jumped 12 percent, the most since May 2009, to $12.36 a bushel as China, the biggest buyer, boosted imports. October marked the fourth straight monthly gain, the longest streak since February 2008. Contracts reached a 25-month high of $12.4875 on Oct. 28.
Gold gained 3.7 percent to $1,357.60 an ounce in October, its third straight monthly gain, and touched a record $1,388.10 on Oct. 14. Silver surged 13 percent.
Crude oil for December delivery rose 1.8 percent to $81.43 a barrel in New York, adding to September’s 11 percent rally.
Yields on 10-year Treasuries rose nine basis points, or 0.09 percentage point, to 2.60 and increased 30 basis points to 3.98 for 30-year bonds.
The dollar weakened against 14 of 16 of its most-traded peers this month, dropping 2.3 percent to $1.3947 per euro and 3.9 percent to 80.40 yen. The Dollar Index, which measures the U.S. currency against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, sank 2.1 percent to 77.04.
“The fear of a currency devaluation led investors to lock into something that could restore their wealth,” said Peter Sorrentino, who helps oversee $13.3 billion at Huntington Asset Advisors in Cincinnati. “With commodities and stocks going up, that’s not a good environment” for Treasuries, he said.
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