S&P 500 Extends Record as Silver, 30-Year Bonds Climb on Yellen speech

New York ( Nov 14)   U.S. benchmark stock indexes extended records, while silver and 30-year Treasury bonds rose, as Federal Reserve chairman nominee Janet Yellen said she wants to maintain stimulus until the economy improves. The yen and euro weakened on slowing economic growth.

The Standard & Poor’s 500 Index climbed 0.4 percent to 1,788.35 at 1:08 p.m. in New York, setting an all-time high for a second day. The MSCI All-Country World Index climbed 0.7 percent and the MSCI Emerging Markets Index jumped 1.4 percent to end a 10-day slump, its longest in seven years. Silver and gold for December delivery climbed more than 1.4 percent to lead commodities higher. Treasury 30-year yields slipped one basis point to 3.80 percent as bonds pared gains following a $16 billion auction. The yen slid versus all 16 major peers and the euro fell versus 12.

The U.S. economy and job market are performing “far short of their potential” and a strong recovery will ultimately enable the Fed to reduce its stimulus, Yellen said in testimony at her nomination hearing today. Economic growth slowed in Japan and the euro area last quarter, reports showed, while American jobless claims topped economists’ estimates.

Yellen “sounded awfully dovish and did not give any indication that she’s ready to pull back on the amount of bond buying that the Fed’s doing,” Chris Gaffney, St. Louis-based senior market strategist at EverBank Wealth Management, said in a phone interview. “Equities are looking at more stimulus as a positive.”

‘Surest Path’

The Federal Open Market Committee will probably wait to taper its bond buying to $70 billion at its March 18-19 meeting from current pace of $85 billion a month, according to the median of 32 economist estimates in a Bloomberg survey Nov. 8.

“Supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” Yellen said in her testimony to the Senate Banking Committee. A “strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases.”

Among U.S. stocks moving today, Home Depot Inc., Walt Disney Co. and Boeing Co. rose more than 1 percent to lead gains that sent the Dow Jones Industrial Average to a record for a second straight day.

Cisco Systems Inc. plunged 12 percent for its biggest drop in more than two years. The world’s largest maker of computer- networking equipment forecast its first quarterly sales decline in four years. Office Depot Inc. gained 4.1 percent after Bank of America Corp. recommended investors buy the stock.

Of the 460 S&P 500 members that have reported earnings this season, 75 percent posted profit that beat estimates, while 54 percent topped sales projections, data compiled by Bloomberg show.

Economic Data

Jobless claims in the week ended Nov. 9 declined 2,000 to 339,000 from a revised 341,000 the week before that was higher than initially reported, the Labor Department said today. The median forecast of 51 economists surveyed by Bloomberg called for a drop to 330,000. Applications for five states were estimated because of the Veterans Day holiday-shortened week, the Labor Department said.

The S&P 500 has surged 25 percent in 2013, poised for its best yearly gain in a decade. The benchmark index trades for 16.9 times its companies’ reported earnings, the highest valuation since May 2010.

Value remains in the U.S. stock market even after this year’s rally, according to Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc.

Price-earnings ratios are lower now than the last time stocks were near these levels, Cohen said in a Bloomberg Radio interview with Tom Keene late yesterday. Janet Yellen is one of the finest policy analysts in the U.S. and deserves to be confirmed as the next chairman of the Fed, said Cohen. She forecasts the S&P 500 will reach 1,900 by the end of 2014, a 6.6 percent gain from yesterday’s close.

‘Increasingly Enthusiastic’

“Companies right now are increasingly enthusiastic about the dynamism in the economy,” said Cohen. “There’s value in the market right now. The U.S. economy will likely grow faster next year.”

The Stoxx Europe 600 Index advanced 0.8 percent for the largest gain in a month. Ophir Energy Plc jumped 10 percent, the biggest gain in the regional benchmark, after Singapore’s state- owned Pavilion Energy Pte said it would pay $1.3 billion for a 20 percent stake in three gas blocks off the shore of Tanzania in east Africa.

Bouygues SA and Zurich Insurance Group AG added added 6.2 percent and 2.5 percent respectively after earnings beat estimates. BNP Paribas SA climbed 2.9 percent after saying it plans to buy the 25 percent it doesn’t own in its consumer- banking unit BNP Paribas Fortis SA from Belgium for 3.25 billion euros. RWE AG fell 5.1 percent after Germany’s second-largest utility said profit next year will almost halve.

Asian Stocks

More than three stocks advanced for every one that declined in the MSCI Asia Pacific Index as information technology and telecommunications companies led all 10 industry groups higher. Hong Kong’s Hang Seng Index and Australia’s S&P/ASX200 Index added at least 0.6 percent.

The yen touched 100.14 per dollar, its weakest level in two months, as Finance Minister Taro Aso said it’s important the nation has intervention as a policy option. Japan’s economy grew at an annualized 1.9 percent pace in the third quarter, versus 3.8 percent in the preceding three months, the Cabinet Office said in Tokyo today.

Euro Economy

The Bloomberg U.S. Dollar Index was little changed as the euro weakened versus its American counterpart for the first time in four days. The euro-area economy grew 0.1 percent last quarter versus 0.3 percent in the second quarter, data today showed. German gross domestic product increased 0.3 percent, down from 0.7 percent in the second quarter, and France’s shrank 0.1 percent.

Italian 10-year bonds rose for a second day, with yields falling six basis points to 4.06 percent.

International Business Machines Corp. and Eni SpA, the biggest Italian oil company, are selling notes in Europe after bond risk in the region fell. Eni is marketing eight-year bonds in euros and is adding to its 3.75 percent September 2025 issue, while IBM plans to sell seven-year securities in pounds. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies fell 1 basis points to 83 basis points.

Gold and silver gained on demand for a store of value as investors speculated continued quantitative easing from the Fed will boost inflation. Gold futures increased 1.5 percent to $1,287.00 an ounce, halting a five-day slump. Gold for immediate delivery extended gains late yesterday after Yellen’s testimony was released. Spot gold was up 0.5 percent after surging 1.1 percent yesterday.

Bullion tumbled 23 percent in 2013 as signs of economic recovery spurred speculation that the Fed will start to cut its monthly bond buying, strengthening the dollar. Global gold demand fell 21 percent in the third quarter as investors continued to dump holdings of the metal through exchange-traded funds and central banks slowed purchases, the World Gold Council said.