Wednesday, September 28, 2011

U.S. Stocks Advance as Treasuries Decline

U.S. stocks rose, sending the Standard & Poor’s 500 Index to its fourth day of gains, after demand for American capital goods climbed by the most in three months and optimism grew that Europe will tame its debt crisis.

The S&P 500 advanced 0.2 percent to 1,177.31 at 9:31 a.m. New York time. The index rose 1.1 percent yesterday, paring a rally of as much as 2.8 percent in the final hour of trading.

“This is classic trading range action,” Liam Dalton, president of Axiom Capital Management Inc. in New York, which oversees $1.4 billion, said in a telephone interview. “We’re shifting emotions between fear and greed until we get some resolution as to the European situation. This market is struggling to have any continuity.”

The S&P 500 rallied 4.1 over the previous three days, paring its loss this quarter to 11 percent. Stocks are having the worst quarter on record relative to Treasuries and gold, which may force investors to buy equities to rebalance their allocations, JPMorgan’s Marko Kolanovic said last week.

$1 Trillion
A four-day rout last week erased $1 trillion from U.S. equities amid concern Greek insolvency is inevitable and Europe can’t contain the damage. The decline left the S&P 500 trading at 12.4 times earnings in the past 12 months, 4.4 percent below its average valuation at the lowest point during the last nine bear markets, Bloomberg data shows.

Futures on the VIX show investors expect the Chicago Board Options Exchange Volatility Index to remain at least 50 percent above its historical average of 20.5 through May, data compiled by Bloomberg show.

Stock futures extended gains today after a report showed orders for U.S. capital goods climbed in August by the most in three months, a sign business investment continues to support the recovery. Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 1.1 percent, the most since May, the Commerce Department report showed. Demand for total durable goods dropped 0.1 percent, less than forecast.

Equities rallied yesterday after Greece made progress in meeting requirements for more international aid and Germany vowed continue to support for the country. Stocks trimmed gains in the final hour after the Financial Times reported that some euro-area countries are demanding that private creditors take bigger writedowns on their Greek bond holdings.

European Commission President Jose Barroso today called for faster creation of a rescue fund and said he will press ahead with common bonds for the euro area, a proposal Germany opposes. Experts from the European Commission, European Central Bank and International Monetary Fund will return to Athens tomorrow to review the Greek government’s budget-cut plans, the commission said.

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