U.S. stocks rallied, led by banking and energy shares, as a rebound in 10-year Treasuries eased concern record government debt sales will trigger higher borrowing costs and oil climbed to a six-month high.
JPMorgan Chase & Co., Bank of America Corp. and American Express Co. added at least 3.4 percent to lead gains in the Dow Jones Industrial Average as the benchmark 10-year note climbed, sending its yield lower for the first time in five days. Exxon Mobil Corp. and Schlumberger Ltd. led gains in all 39 Standard & Poor’s 500 Index energy shares after oil topped $65 a barrel as OPEC left production quotas unchanged.
The Standard & Poor’s 500 Index added 1.5 percent to 906.83 at 4:05 p.m. in New York. The Dow Jones Industrial Average advanced 103.78 points, or 1.3 percent, to 8,403.8. Almost two stocks rose for each that fell on the New York Stock Exchange.
“A drop in Treasury yields is a positive for the stock market and for financials,” said Mark Bronzo, a money manager at Security Global Investors, which oversees $21 billion in Irvington, New York. “Investors had been concerned about how quickly rates had been climbing, affecting the ability to refinance and get mortgages. A drop in rates creates a good environment for financials.”
Benchmark indexes drifted between gains and losses earlier as 10-year yields threatened to climb for a fifth-straight day, spurring concern that the rout in Treasuries will spur higher rates for mortgages and other consumer loans.
Yield Watch
JPMorgan, the largest U.S. bank by market capitalization, jumped 5.7 percent to $36.65. American Express added 3.4 percent to $24.30. The yield on the 10-year note slipped 0.09 percentage point, or nine basis points, to 3.64 percent today.
Stocks slid yesterday as the 10-year note’s fourth straight drop sent its yield to a record spread above two-year notes. The so-called yield curve -- the difference between two and 10-year notes --widened to a record 2.75 percentage points yesterday. The curve narrowed to within 2.68 percentage points today.
As of yesterday, yields on 10-year notes had risen more than 100 basis points since Federal Reserve officials said in March they would buy up to $300 billion of U.S. debt over six months in an effort to reduce rates.
Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the gains in Treasury yields resulted from of an oversupply of government debt.
‘A Lot of Money’
“The Treasury is issuing a lot of money,” Gross, who manages the $150 billion Pimco Total Return Fund, the world’s biggest bond mutual fund, said today in an interview in Chicago. “The market is beginning to wonder who is going to be buying these bonds.”
A gauge of 39 energy companies surged 3 percent for the second-biggest gain in the S&P 500 after financials.
Exxon Mobil Corp., the biggest U.S. oil company, added 1.4 percent to $69.23. Schlumberger, the largest oilfield services company, rallied 5.5 percent to $56.35. Occidental Petroleum Corp. advanced 4.2 percent to $65.47.
Newmont Mining Corp., the largest U.S. gold producer, rose 3.2 percent to $47.35 as demand for the metal as a store of value strengthened because the dollar fell.
The dollar declined for the first time this week against the euro, falling as much as 0.9 percent. Gold typically moves inversely to the U.S. currency.
‘Inflation Beneficiaries’
“There’s still a lot of concern about inflation potential and the appetite for the massive government debt issuance,” said David Goerz, who oversees $17 billion as chief investment officer at Highmark Capital Management in San Francisco. “We’re going to see some of the inflation beneficiaries like agriculture, raw-materials, energy move into the leadership category as we get into the second half of the year.”
Orders for durable goods, while lingering near a 13-year low, did increase more than forecast in April, adding to evidence that the recession is easing. Orders climbed 1.9 percent from the previous month after a revised 2.1 percent drop in March that was more than twice as large as previously estimated, the Commerce Department said. A rebound in automobile orders and a jump in defense spending spurred the gain in April.
“It’s comforting to see those economic figures,” said Stanley Nabi, vice chairman of Silvercrest Asset Management Group, which oversees $7.5 billion in New York. “They give us a better indication that the decline in the economy is in fact slowing. That should give some support to the stock market.”
Housing Slump
A gauge of 13 homebuilders declined 4.4 percent after mortgage delinquencies and foreclosures climbed to records in the first quarter, spurring concern the housing slump is far from over. The Mortgage Bankers Association said the U.S. delinquency rate jumped to a seasonally adjusted 9.12 percent and the share of loans entering foreclosure rose to 1.37 percent, both the highest in records going back to 1972.
A separate report from the Commerce Department showed that new-home sales increased 0.3 percent to an annual pace of 352,000 in April, slower than the 1.1 percent growth forecast in a Bloomberg survey of economists.
Centex Corp., the U.S. homebuilder that agreed last month to a $1.3 billion buyout by rival Pulte Homes Inc., declined 6.9 percent to $8.33. Pulte fell 7.8 percent to $8.67. Lennar Corp. retreated 5 percent to $8.90.
Home Depot Inc. led consumer discretionary stocks 0.2 percent lower, for the only decline in the S&P 500 among 10 industry groups. The world’s largest home-improvement retailer fell 2.7 percent to $22.70 for the biggest decline in the Dow average. Smaller rival Lowe’s Cos. slid 3.1 percent to $19.02.
Shorts Retreat
The steepest rally in seven decades is convincing more short sellers they were wrong about the U.S. stock market.
Shares of S&P 500 companies borrowed and sold short fell 1.7 percent to 9.87 billion between April 30 and May 15, the lowest level since Feb. 27, according to exchange data compiled by Bloomberg. Short interest declined the most in technology companies. Traders reduced bets against Microsoft Corp., the biggest software maker, and Cisco Systems Inc., the largest supplier of networking equipment, by more than 25 percent, the data show.
Investors turned less bearish as the S&P 500 surged 37 percent between March 9 and May 8. U.S. stock exchanges release data on short selling, or the sale of borrowed stock with the hope of buying it back at a lower price, every two weeks. Yesterday’s report was the third in a row that showed a decrease in wagers that stocks would decline.
The S&P 500 is up 0.4 percent in 2009 after tumbling 38 percent last year, the worst annual decline since the Great Depression, as global credit losses stemming from the collapse of the subprime mortgage market dragged the nation into a recession.
The S&P 500 has surged 34 percent from a 12-year low in March on speculation the global recession is easing and as earnings at companies from Ford Motor Co. to Wells Fargo & Co. beat analyst estimates.
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