ECONOMIC INDICATORS

U.S. stock futures rise on speculation central banks will act

BLOOMBERG FILE PHOTO/JIN LEE
U.S. STOCK FUTURES rose, indicating the Standard & Poor’s 500 Index will complete a second straight weekly advance, on speculation central banks will act to boost economies as Europe’s debt crisis threatens growth.
Posted 6/15/12

NEW YORK - U.S. stock futures rose, indicating the Standard & Poor’s 500 Index will complete a second straight weekly advance, on speculation central banks will act to boost economies as Europe’s debt crisis threatens growth.

Walt Disney Co. and Boeing Co. added more than 0.5 percent to pace gains among the biggest companies.

S&P 500 futures expiring in September rose 0.2 percent to 1,328.2 at 8:09 a.m. New York time. The benchmark gauge has gained 0.3 percent this week. Dow Jones Industrial Average futures added 31 points, or 0.3 percent, to 12,637 today.

“Ahead of Sunday’s election in Greece, central bankers stand ready, again,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote in a note. “With all the water central banks have expended out of their fire hoses over the past few years in their attempt to ’do something,’ I can only think of magic candles. Those candles you blow out that only flare up again immediately after.”

Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.

A victory by Syriza, the party that promises to renege on Greece’s end of the bailout deal, could speed the nation’s exit from the euro. The Group of 20 leaders prepare to meet in Mexico next week amid the weakest international economy since the 2009 recession.

Industrial production in the U.S. probably cooled in May as businesses trimmed investment plans and fewer motor vehicles rolled off assembly lines as sales slowed, economists said before a report today. Another report may show manufacturing in the New York-region probably slowed this month.

Economic concern

Concern about a global economic slowdown and a worsening of Europe’s debt crisis put the S&P 500 on the brink of a so-called correction earlier this month. The index dropped 9.9 percent from an almost four-year high in April through June 1. The lowest valuation in six months and expectations of global policy action drove the benchmark gauge up 4 percent since then.

Some of the largest companies gained today. Walt Disney, the world’s largest entertainment company, climbed 0.5 percent to $47.43. Boeing, the world’s largest aerospace company, added 0.6 percent to $72.30.

Any multiyear rally in U.S. stocks may depend on a signal that the bond market has yet to send, according to Michael Hartnett, Bank of America Corp.’s chief global equity strategist.

‘Inflection point’

Bond yields have to reach “an inflection point” before shares can move into what’s known as a secular bull market if history is any guide, Hartnett wrote in a June 12 report.

The Chart of the Day compares the Dow Jones Industrial Average and the yield on 10-year Treasury notes since 1900, as Hartnett did in his report. The yield figures were compiled by Yale University Professor Robert J. Shiller and obtained from his website.

Hartnett highlighted three inflection points in the past century, as shown in the chart. They foreshadowed stock-market booms during the 1920s, after World War II, and throughout most of the 1980s and 1990s.

A comparable surge in share prices is unlikely, he wrote, “until Treasury yields rise in response to stronger growth and a healthier global economy.” The 10-year yield fell to a record 1.4387 percent this month.

Even so, lower yields are giving investors more incentive to shift into stocks from bonds, the New York-based strategist wrote. He estimated that it will take a 0.6 percent yield for the 10-year’s return in the next 12 months to match stocks’ 20th-century average of 10.5 percent a year.

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