The S&P 500 climbed 12 percent, 5.3 percentage points more than gold for the widest gap to start a year since 1999, according to data compiled by Bloomberg. The S&P GSCI Total Return Index (SPGSCITR) of 24 commodities gained 5.9 percent over the three months, while Treasuries slipped 1.3 percent, trailing equities by the most since 2009. Corporate bonds increased 2.4 percent and the dollar fell 1.6 percent.
Traders work in the S&P 500 pit of the CME Group's Chicago Board of Trade. Photographer: Tim Boyle/Bloomberg
April 2 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the outlook for stocks and investment strategy. Faber, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses Federal Reserve policy and the gold market. (Source: Bloomberg)
April 2 (Bloomberg) -- David Kelly, chief market strategist at JPMorgan Funds, talks about investment strategy, the outlook for financial markets and the U.S. economy. Kelly, speaking with Betty Liu, Dominic Chu, Sheila Dharmarajan and Josh Lipton on Bloomberg Television’s “In the Loop,” also discusses Federal Reserve policy. Todd Horwitz, chief strategist at Adam Mesh Trading Group, also speaks. (Source: Bloomberg)
March 30 (Bloomberg) -- Goldman Sachs Asset Management Chairman Jim O'Neill and Roubini Global Economics Chairman Nouriel Roubini discuss the European debt crisis, oil prices and the outlook for the U.S. economy. They speak with David Tweed in Cernobbio, Italy, on Bloomberg Television's "Countdown." (Source: Bloomberg)
Ben S. Bernanke, chairman of the U.S. Federal Reserve, right, said the economy needs “continued accommodative monetary policy” to boost jobs. Photographer: Andrew Harrer/Bloomberg
Stocks are diverging from defensive investments such as gold as appetite for risk increases. While bulls see it as a signprofits and the economy are gaining traction, bears point to Federal Reserve Chairman Ben S. Bernanke’s warnings that more stimulus may be needed as evidence that the rally has gone too far. To money manager Laszlo Birinyi, slower gains in precious metals signal pessimism is starting to fade.
“The problem with gold now is that people are starting to accept the economy recovery,” Birinyi, president of Westport, Connecticut-based Birinyi Associates Inc., said in a March 29 phone interview. Even as confidence builds, “people are still too focused on the concerns and the fact that this looks similar to last year, where everyone said sell in May and go away,” he said. “That’s exactly the kind of thing we look for.”
Monthly Gain
The benchmark gauge for American equities advanced 0.8 percent last week to 1,408.47, bringing the increase for March to 3.1 percent. The S&P 500 rose 0.8 percent to 1,419.04 today.
U.S. Treasuries lost 1 percent in the month after S&P 500 earnings expanded for a ninth straight quarter and manufacturing and home sales improved, while corporate bonds dropped 0.6 percent. The S&P GSCI commodity gauge slipped 2.4 percent and the Dollar Index, which measures the currency against the biggest U.S. trading partners, added 0.3 percent.
Record earnings, improved U.S. manufacturing and retail sales, and attempts by European leaders to contain their debt crisis helped stocks rally in the quarter, beating gold as demand for assets that protect against losses faded. Equities pulled ahead in March when Bernanke damped speculation he would carry out more bond purchases, adding to evidence that the recovery is gathering momentum. He said on March 26 that while he’s encouraged by the decline in unemployment, more stimulus is needed to create jobs.
One-Year Low
The rally in gold may pick up speed should central banks signal further action, according to Ioan Smith, a director at Knight Capital Europe Ltd. in London. Futures on the metal surged 1.6 percent on March 26 after Bernanke said the economy needs “continued accommodative monetary policy” to boost jobs.
“If the Fed reinstitutes quantitative easing measures later in the year, coupled with rising fiscal deficits and currency debasement among countries in the developed world, then gold may continue to hold an underlying bid,” Smith said in an e-mail.
Fourteen out of 21 primary dealers in U.S. Treasuries say the Fed will probably need a third round of bond purchases, or quantitative easing, to bolster the economy, according to a Bloomberg News survey.
LSI, Lennar Earnings
The S&P 500 has rallied 28 percent since it reached a one- year low on Oct. 3, gaining as companies from LSI Corp. (LIS) to Lennar Corp. (LEN) reported earnings that beat estimates. Profits for the 500 companies will rise 13 percent in 2012 after climbing 9.9 percent in 2011, estimates and data compiled by Bloomberg show. Analysts boosted forecasts by 0.2 percent in the four weeks through March 22 to $104.37 a share in the biggest increase of 2012. They fell during January and February, the data show.
The Commerce Department said last week the economy grew 3 percent during the last three months of 2011, more than any quarter since June 2010. Equity gains came as the Chicago Board Options Exchange Volatility Index, or VIX, sank 64 percent since the end of September, a record two-quarter retreat, Bloomberg data show.
“It’s not just that people bought equities because they had nothing else to do with their money, it’s that the actual underlying businesses had done pretty well,” Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $1.5 billion, said in a March 28 interview. “As people start to realize this, you’ll see a migration of that safe haven trade out of gold and into the portions of the global equity market which are really able to benefit.”
Volatility Notes
Rallying stocks and the plunging VIX (VIX) also caused demand for the VelocityShares Daily 2x VIX Short-Term ETN (TVIX), known by the symbol TVIX, to explode as traders sought a cheap way to protect gains in equities. Interest in the note, which owns VIX futures, was so great Credit Suisse Group AG stopped issuing shares in February after its market value soared to almost $700 million from $162.8 million at the end of 2011.
The combined value of the five biggest VIX-related securities traded on U.S. markets swelled to $2.8 billion as of March 29, more than doubling from the level at the end of 2011. Their market capitalization rises as their sponsors issue new stock to keep the share prices aligned with an underlying index.
The 9.9 percent increase in earnings last year wasn’t enough to spare the S&P 500 from its smallest annual move since 1947, leaving the valuation measure at 13.6 times reported profits on the last day of 2011, 20 percent below the average since 1954, data compiled by Bloomberg show. Since then, the price-earnings ratio climbed to 14.6, about 11 percent below the historic mean.
Annual Start
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