Stocks climbed with bonds as the dollar fell after the Federal Reserve’s long-term outlook added to optimism over stimulus policies from global central banks. Oil rallied.
Global equities extended a four-day advance, Treasuries rose to the strongest level in two weeks, and high-yielding currencies surged after the Fed left interest rates unchanged on Wednesday while scaling back its projections for future hikes. The decision gave fresh impetus to emerging markets as Russia joined Argentina in announcing a bond sale and South Africa’s rand posted its longest winning streak since 2013. A gauge of commodities increased for a sixth straight session as metals gained and U.S. crude topped $46 a barrel.
Traders pushed up the value of stocks, bonds and commodities as the latest signals from central bankers suggest the era of cheap money has further to run. While the Fed still sees a rate hike in 2016, its projection for increases in 2017 was trimmed to two from three. The decision came after the Bank of Japan tweaked its monetary policy, giving officials scope to keep loosening while limiting the negative impact on bank earnings. Both Norway and South Africa left their key rates unchanged.
“It’s a bit of a relief rally,” said Chris Gaffney, the president of EverBank World Markets in St. Louis. “It’s the case that central banks, their mantra is ‘do no wrong’ right now.”
With the Fed moving off center stage for now, investors will turn their attention to economic data, and another earnings season that gets underway in about three weeks. Data today showed filings for unemployment benefits dropped last week to match the lowest level since April, while sales of previously owned U.S. homes unexpectedly declined in August.
MSCI’s gauge of global equities climbed 1.3 percent at 10:11 a.m. in New York, led by commodity companies. Emerging-market shares headed toward their biggest gain since July.
The S&P 500 Index added 0.7 percent to 2,177.36, rising back above its average price during the past 50 days for the first time in almost two weeks. The Nasdaq Composite Index was set for another record.
To the biggest bull on Wall Street, the Fed’s restraint is one more reason that U.S. stocks are on their way to all-time highs. Thomas Lee, managing partner and co-founder of Fundstrat Global Advisors, has the highest year-end target for the S&P 500 among 19 strategists surveyed by Bloomberg. His forecast level of 2,325 implies a 7.5 percent gain from yesterday’s close.
“The market reaction was a sigh of relief,” said Daniel Murray, head of research at EFG Asset Management in London. “Now that that uncertainty is removed, investors will go back to looking at macro data and corporate announcements.”
For the first time since Bloomberg began compiling 2016 targets last year, forecasters have increased their estimates for the level at which the Stoxx Europe 600 Index will end in December. They now see the gauge reach 346, according to the average of 10 projections compiled by Bloomberg, up from 334 last month. In its second day of gains, the measure is hovering around that level, propelled by the Fed’s more dovish stance.
The U.S. 10-year note yield dropped three basis points, or 0.03 percentage point, to 1.62 percent, according to Bloomberg Bond Trader data.
“Yields will remain at historically low levels for some time,” Bill Irving, co-manager of Fidelity Government Income Fund said, according to the transcript of an interview on his firm’s website. “In that environment, I’d be cautious about reaching for yield.”
Treasuries have rallied this year as economic circumstances in the U.S. and abroad caused the Fed to delay tightening policy multiple times after a liftoff from near zero in December. While signs of labor-market strength have led bond traders to price in a growing likelihood of a rate increase by year-end, other data such as August retail sales and industrial production have shown declines.
Spain’s 10-year bond yields tumbled to a record low, while similar maturity Germany’s bund yields fell five basis points to minus 0.048 percent.
Russia offered investors as much as $1.25 billion of bonds in a tap of the 2026 notes it sold in May, according to the Finance Ministry. Meanwhile, Argentina has picked three banks to pitch an offering of at least 500 million euros ($562 million) bonds to European investors this month.
The U.S. currency weakened versus most of it major peers, pushing its drop this year beyond 4 percent. The dollar fell the most against higher-yielding currencies including South Africa’s rand and the Mexican peso.
“The U.S. dollar decline has more weeks to go, we think about two months,” Hans Redeker, Morgan Stanley’s chief global currency strategist in London, said in an interview with Bloomberg Television. “We suggest that the U.S. dollar will extend its decline, index-wise, between 4 percent to 5 percent.”
The Fed’s announcement further dims the outlook for the dollar after a 20 percent surge since the middle of 2014 gave way to weakness this year in the run-up to the decision. Currency traders are losing faith in the prospects of continued monetary-policy divergence with central banks in Europe and Japan.
Bloomberg’s Dollar Spot Index, which measures the currency against major peers, dropped 0.4 percent, reaching the weakest level since Sept. 13.
The Bloomberg Commodity Index advanced for a sixth day, rising 1.2 percent, amid a weaker dollar.
Oil extended gains after weekly government data showed U.S. inventories dropped to the lowest since February, trimming stockpiles that remain at the highest seasonal level in at least three decades.
Futures rose as much as 2.4 percent in New York. Inventories fell by 6.2 million barrels last week, an Energy Information Administration report showed on Wednesday. A Bloomberg survey before the report forecast a gain. OPEC members Saudi Arabia and Iran, whose rivalry derailed an oil supply accord earlier this year, met in Vienna a week before the organization holds talks in Algeria. Prices climbed further as equities advanced and the dollar dropped.
“U.S. crude oil inventories fell hard last week,” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London. “A good day for oil bulls, but their optimism might not last as the oversupplied nature of the global oil market shows no signs of easing.”
West Texas Intermediate for November delivery advanced 95 cents, or 2.1 percent, to $46.29 a barrel at 9:20 a.m. on the New York Mercantile Exchange. The November contract rose 2.9 percent on Wednesday. Total volume traded was about 7 percent above the 100-day average.
By Alan Soughley, Rita Nazareth and Dani Burger.