Mr Kuroda and Japan’s prime minister, Shinzo Abe, have launched a vast
stimulus programme, promising in April to inject $1.4 trillion into the
economy in less than two years through quantitative easing, to jolt the
Japanese economy out of a 15-year deflationary malaise and lift inflation to
The policy triggered a massive stock market rally. But a surge in bond yields,
which means bond prices have fallen, has threatened to make government
Domestic banks could be forced to take losses on their large holdings of
Japanese government debt.
Mr Kuroda said that the Bank of Japan was watching for any signs of
overheating in asset prices and would take “appropriate action” if financial
imbalances emerge, suggesting it might unwind its ultra-loose policy.
Most U.S. stocks fell, after benchmark indexes climbed to record levels last week, even as government data showed retail sales unexpectedly rose in April.
Yum! Brands Inc. fell 2.1 percent after the owner of the KFC and Pizza Hut dining chains reported a slump in April sales in China. Corning Inc. (GLW) climbed 0.9 percent as analysts raised their recommendation for the shares. Theravance Inc. rose 18 percent after Elan Corp. agreed to pay $1 billion for a share in royalties on new drugs.
The Standard & Poor’s 500 Index (SPX) rose less than 1 point to 1,633.77 at 4 p.m. in New York. The Dow Jones Industrial Average slid 26.81 points, or 0.2 percent, to 15,091.68. Almost 5.3 billion shares traded hands on U.S. exchanges today, or 16 percent below the three-month average, as about seven stocks declined for every five that advanced.
“It’s obvious that this market has got legs, the question is whether the economy is going to grow some legs to support stocks going forward,” Frank Braddock, senior portfolio manager with the Braddock Group of JHS Capital Advisors, said by phone from Columbia, South Carolina. JHS oversees about $3.4 billion.
The 0.1 percent increase in U.S. retail sales followed a 0.5 percent decline in March, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.3 percent drop. A separate report showed companies in the U.S. unexpectedly held inventories in check in March as sales fell by the most in nine months, an indication orders will rise as demand picks up.
Overseas, Israel’s central bank cut its benchmark rate 25 basis points to 1.5 percent, joining a wave of monetary easing spanning from the U.S. to Europe. In China, the world’s second-largest economy, fixed-asset investment unexpectedly decelerated last month while industrial output trailed estimates.
“It seems consumers have been able to absorb the tax increases better than most had thought, but we still need to see if we can come out of this second-quarter purgatory,” Ron Florance, the Scottsdale, Arizona-based managing director of investment strategy at Wells Fargo Private Bank, which has $170 billion assets under management, said in a phone interview. “Israel surprised with their rate drop and everyone around the world is now doing easy money, so the pedal is to the metal at the global level.”
The S&P 500 rallied to a record on May 10, capping a third week of gains and extending its advance so far this year to 15 percent. U.S. stocks climbed last week as companies from Walt Disney Co. to DirecTV beat earnings estimates and central banks worldwide stepped up monetary stimulus to boost growth.
The Chicago Board Options Exchange Volatility Index, or VIX, fell 0.3 percent to 12.55. The equity volatility gauge is down 30 percent for the year.
Seven out of 10 (SPXL1)industries in the S&P 500 retreated as phone stocks and raw-material producers declined the most, while health-care companies had the largest gains as a group. Peabody Energy Corp. slumped 4.1 percent to $20.14 for the biggest retreat in the S&P 500, followed by losses of more than 3.4 percent in Joy Global Inc. and U.S. Steel Corp.
Yum slid 2.1 percent to $68.92 after the company reported a 29 percent drop in sales at stores open at least 12 months in China as the spread of bird flu hurt demand. Analysts projected a 27 percent drop, the average of five estimates compiled by researcher Consensus Metrix. Sales dropped 36 percent at KFC while gaining 5 percent at Pizza Hut.
AutoZone Inc. slipped 1.2 percent to $415.76. The retailer of automotive replacement parts and accessories was downgraded to hold from buy at Deutsche Bank AG with a 12-month price estimate of $410 a share.
Mosaic Co. lost 3.1 percent to $61.30. The world’s largest producer of phosphate crop nutrients said it favors share buybacks over dividends to redeploy surplus cash. With an estimated $2 billion of cash by the end of the month, Mosaic is assessing its ability to buy back shares while seizing growth opportunities and maintaining a “solid” investment-grade credit rating, Chief Financial Officer Larry Stranghoener said today on a conference call.
Corning (GLW) rose 0.9 percent to $15.24 after Barclays Plc raised its recommendation for the shares to overweight, the equivalent of a buy rating. Morgan Stanley also upgraded the maker of glass for flat-panel televisions to equal weight, a level similar to hold, from underweight.
Theravance jumped 18 percent to $41.20 after Elan agreed to buy a share of drug royalties that Theravance will receive from GlaxoSmithKline Plc. The Irish drugmaker will receive 21 percent of royalties earned by Theravance on four respiratory drugs, and 20 percent of that income will be paid to Elan shareholders as a dividend.
J.C. Penney Co. rose 2.9 percent to $18.24. The department-store chain that replaced its chief executive officer last month set a lender meeting for tomorrow to discuss a $1.75 billion loan, according to a person with knowledge of the matter who asked not to be identified because the deal is private. CEO Myron Ullman is working to improve sales after revenue last year tumbled 25 percent to $13 billion amid Ron Johnson’s failed attempt to remake the retailer.
The S&P 500 has climbed to record highs on seven of the last eight trading days. Oppenheimer & Co.’s John Stoltzfus raised his year-end target for the index to 1,730 today from 1,585, ranking him as the second-most bullish strategist on Wall Street after Canaccord Genuity Securities LLC’s Tony Dwyer, who has a 1,760 estimate on the benchmark index.
Returns from the U.S. equity bull market that started four years ago are matching those from the last half of the 1990s even as valuations are 28 percent lower.
The S&P 500 has gained 26.2 percent annually including dividends since March 2009, the same as during the last 50 months of the technology bubble, according to data compiled by Bloomberg. Shares in the index now trade at 18.6 times annual profit, below the average 25.7 multiple in the 1990s rally led by Internet companies.
For bulls, the valuations show stocks will keep rising after the S&P 500 advanced 164 percent as individuals scarred by the worst financial meltdown since the Great Depression return to equities. Bears say the price-earnings ratios mean investors lack confidence in the economy and corporate profit growth. They also note that the last time returns were this high, the bubble popped and more than $5 trillion was erased from the value of U.S. stocks, according to data from the World Bank.
“The size of this rally’s not what keeps me up at night,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, which oversees about $170 billion, said in a May 8 phone interview. “That was a tremendous rally then, too, but I’m not getting all nervous based on the size of the rally this time, because we’re not there yet in terms of valuation.”
The figures may prompt economists to forecast spending this quarter will cool less than previously projected as Americans overcome a January increase in the payroll tax. Photographer: Scott Eells/Bloomberg
May 13 (Bloomberg) — Gina Martin Adams, an equity strategist at Wells Fargo Securities LLC, talks about U.S. stocks, retailers and corporate earnings.
She speaks with Tom Keene, Sara Eisen, Alix Steel and Michael McKee on Bloomberg Television’s “Surveillance.” (Source: Bloomberg)
NEW YORK — The Dow Jones industrial average has barreled to an all-time high, erasing $11 trillion of losses racked up when the financial crisis began five years ago.
The stock market’s revival — with the Dow at a record 14,253.77 — has some respected minds on Wall Street suggesting the Dow will puncture 20,000 in just a few years. But, as investors may recall, the last few times the stock market seemed headed for records, disaster soon followed.
High-flying tech stocks led to highs in 2000 just before the bubble burst. The rally that ended in 2007 was followed by the worst economic downturn since the Great Depression.
So what’s different now?
Corporate America is raking in bigger profits, stock prices are relatively cheap, and the Federal Reserve‘s easy-money policies have pushed interest rates to record lows.
“Earnings are going to re-accelerate this year, and over the next four years really see a pretty substantial increase … and that’s what’s going to drive us to Dow 20,000,” said Thomas Lee, chief U.S. equity strategist at JPMorgan Chase & Co. “The harder thing for people to really believe is that earnings could grow faster, but that’s really going to provide a lot of legs to this rally.”
Even if average investors remain wary of the stock market, Fed policies have left them with precious few opportunities to earn returns on their savings. The latest jump in the Dow came after a confluence of economic reports pointed to a healthy U.S. service sector, strong retail sales in Europe and steady growth in China.
Investors have also been emboldened as U.S. policymakers signaled they would continue the central bank’s monetary stimulus programs. That means interest rates will probably remain near historic lows for perhaps a couple more years, and in the process pump billions of dollars into the financial system. That would prop up the real estate market and make stocks look more attractive.
Investors sent the Dow up more than 7,700 points after the index hit a recent low of 6,547.05 in 2009. And the most recent rally sent it 90 points north of its previous closing record half a decade ago. The new record does not include the effect of inflation. Adjusted for inflation, the index would have to reach 15,502 to match its old record.
Broader stock indexes have also been hovering near all-time records. The Wilshire 5000 Total Market Index, the broadest barometer of stocks, started hitting new highs in late January.
The benchmark Standard & Poor’s 500 index neared its Oct. 9, 2007, all-time high on Tuesday, adding 14.59 points, or 0.96%, to close at 1,539.79. The Nasdaq gained 42.10 points, or 1.32%, to 3,224.13. Though the index is trading at a 12-year high, it is still about 36% from its best close of 5,048.62, reached at the height of the tech bubble in March 2000.
Much of Wall Street’s new optimism is pinned to the prospects of profit growth. That might seem peculiar considering some big companies are ratcheting down their projections for 2013, including economic powerhouses such as Wal-Mart Stores and Federal Express.
Wall Street analysts have notched down their expectations for corporate profit growth since the start of the year. Although earnings of the average company in the S&P 500 are expected to grow 7.6% this year, down from a projected 10% in early January, that would still be higher than last year’s 4.5% rise in profit, according to S&P Capital IQ.
Per-share earnings for the average company in the S&P 500 are on track to break a record this year, according to S&P Capital IQ. That’s a sharp contrast to late 2007, when corporate profits started to nose-dive just ahead of the financial meltdown.
As a result, strategists at major Wall Street firms such as Goldman Sachs and BlackRock are predicting stocks could gain an additional 4% by the end of 2013.
Some market optimists wouldn’t be surprised if the Dow broke 15,000 by year’s end. A climb to 20,000 over the next four years seems possible to some — a prediction that may seem ridiculous to investors still feeling the sting of the financial crisis.
“The economy is going to improve by the end of the year, and people are going to be moving out of bonds and moving into stocks,” said Jeremy Siegel, finance professor at the University of Pennsylvania’s Wharton School.
He sees a 50-50 chance the Dow could land between 16,000 and 17,000 by year’s end. Hitting 20,000 within the decade isn’t out of the question either, he said.
“It’s certainly not impossible that it will get there in the next four years,” he said. But, he added: “There’s a lot of things that can happen in that period of time.”
Some of the biggest worries include what happens if the Fed begins to raise interest rates. Those low rates have made bonds extremely cheap to issue, and companies have used that money to buy back shares and acquire other companies — pushing up stock prices despite less-than-stellar economic growth.