Commodities Beat Stocks, Bonds, Dollar in 2010

Commodity prices beat gains in stocks, bonds and the dollar this year as China, the biggest user of everything from cotton to copper to soybeans, led the recovery from the first global recession since World War II.

The Thomson Reuters/Jefferies CRB index of 19 raw materials gained 15 percent through yesterday. The MSCI All Country World Index of stocks rose 13 percent with dividends reinvested. Global bonds returned 4.7 percent, based on Bank of America Merrill Lynch’s Global Broad Market Index, and the U.S. Dollar Index, a gauge against six counterparts, added 2.1 percent. The CRB outpaced the other measures for the first time since 2007.

Investors snapped up raw materials this year as China’s growth, the fastest of any major economy, spurred record demand for sugar and soybeans and rising imports of copper. At the same time, crops were ruined by Russia’s worst drought in at least a half century, flooding in Canada and parched fields in Kazakhstan, Europe and South America.

“This year has been incredibly strong,” said Nic Johnson, who helps manage about $24 billion in commodities at Pacific Investment Management Co. in Newport Beach, California. “You’ve had strong growth from China that put a bid into copper, and global crop problems cause huge rallies.”

This was the first year since 2005 that commodities, stocks, bonds and the dollar all rose as the global economic recovery proved resilient.

Cotton, Silver

Gains in the CRB were led by cotton, which surged 89 percent this year, reaching a record Dec. 21, on speculation that supply would fail to keep pace with rising demand in China. Silver, the precious metal most used in industry, jumped 81 percent as it attracted investors betting on both faster and slower economic growth. Corn jumped 49 percent and coffee climbed to a 13-year high as inventories shrunk and bad weather threatened crops in South America.

China’s economy expanded more than 10 percent this year, according the median of 18 economists’ estimates compiled by Bloomberg. While growth will slow to 9 percent next year, that will still be three times the rate of the U.S. and six the times the speed of the euro region, based on Bloomberg surveys of as many as 69 economists.

“There is no doubt that demand is coming from China, and there are other emerging markets where demand grew,” said James Paulsen, who oversees $350 billion as the chief investment strategist at Minneapolis-based Wells Capital Management. “Commodities have gone up because the economy was gearing up. It became a sustainable global economic recovery.”

Materials Rebounded

Raw materials rebounded in the last two quarters, with the CRB surging 27 percent since June 30. That’s the best second- half performance since the index debuted in late 1956. In the first six months, the gauge lost 8.8 percent.

Seventeen of 19 commodities tracked by the CRB rose this year. Natural gas lost 22 percent and cocoa fell 8.8 percent.

In December, the commodity gauge jumped 8.5 percent. That compares with a 7 percent advance for the MSCI All Country World Index and a 0.7 percent drop for bonds. The U.S. Dollar Index lost 2.1 percent. The Standard & Poor’s 500 Index added 6.7 percent with dividends reinvested, and returned 15 percent in 2010.

Returns for commodity investors may be lower than the spot CRB index suggests. The S&P GSCI Total Return Index, tracking the net amount received, rose 7.3 percent this year. When longer-dated contracts cost more than those for immediate delivery, a market structure known as contango, investors pay a premium to maintain their holdings as positions expire.

Financial Crisis

Stocks overcame the worst financial crisis since the 1930s as corporate profits exceeded estimates and central banks kept interest rates near record lows. Boeing Co., Home Depot Inc. and General Electric Co. beat earnings estimates for at least the past four quarters.

Governments have taken unprecedented measures to spur growth and boost confidence, as concerns the debt crisis in Europe would derail the global recovery pushed the MSCI All World Index to a low of 262.64 on May 25. The index posted back- to-back monthly gains in September and October and is headed for the biggest December rally since 1999.

The MSCI All World Index of developed and emerging stocks reached 330.9 on Dec. 29, the highest since Sept. 2, 2008, before the collapse of Lehman Brothers Holdings Inc.

‘Honorable Returns’

“It’s good to be crossing the finish line with honorable returns,” said Lawrence Creatura, a Rochester, New York-based fund manager at Federated Investors Inc., which oversees about $340 billion. “The double dip did not occur. The unemployment situation in the U.S., while not improving, did not deteriorate further. Globally, Europe was able to prevent a worst-case scenario.”

U.S. Treasuries, benchmarks for borrowing costs around the world, returned 5.5 percent this year, rebounding from a 3.7 percent loss in 2009, Bank of America figures show.

Bonds rallied from January through August as the U.S. economy threatened to slide back into a recession. They trimmed gains in the last four months of the year, sliding as Federal Reserve Chairman Ben S. Bernanke implemented a plan in November to pump $600 billion into the market.

Japanese bonds, the biggest debt market, returned 2.4 percent in 2010 as the central bank cut its benchmark interest rate to “virtually zero.” The rally was more than double the 0.9 percent gain in 2009, based on the Bank of America data.

Financial Bailouts

Greece and Ireland, which sought financial bailouts this year, had the worst-performing bonds among the 26 sovereign markets compiled by the European Federation of Financial Analysts Societies and Bloomberg.

Corporate bonds worldwide returned 7.12 percent this year, compared with 16.3 percent in 2009, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The debt has lost 0.82 percent in December, following a 1 percent drop in November. The securities are poised for the biggest quarterly decline since the three months ended September 2008.

The extra yield investors demand to own corporate bonds instead of government debt has declined to 169 basis points, or 1.69 percentage points, from 176 basis points on Dec. 31, 2009, the index data show. Spreads narrowed this month from 177 basis points on Nov. 30.

“Economies are up and some of the darkest fears of the pessimists did not come to fruition,” Creatura said. “The U.S. and global economies, while they’re not firing on all cylinders, are moving forward.”

U.S. Stocks Advance as Confidence, Home Sales Beat Forecasts

Aug. 25 (Bloomberg) -- U.S. stocks rose as better- than- estimated consumer confidence and home prices bolstered optimism the recession is ending, while falling oil prices dragged down energy producers. Treasury yields declined after a record-tying $42 billion sale of two-year notes.
Macy’s Inc. and Bed Bath & Beyond Inc. added more than 3.5 percent as the Conference Board’s measure of consumer sentiment increased to 54.1, topping the median projection of 47.9. Pulte Homes Inc., the nation’s biggest builder by market value, rose 3.7 percent as the S&P/Case-Shiller home-price index for 20 U.S. cities dropped by the smallest amount since April 2008. Energy companies fell as crude lost 3.7 percent from a 10-month high.
The Standard & Poor’s 500 Index added 0.4 percent 1,029.73 at 3:01 p.m. after rallying as much as 1.2 percent. The Dow Jones Industrial Average advanced 48.30 points, or 0.5 percent, to 9,557.58, gaining for the sixth straight day. Both measures reached their highest levels of 2009.
“Obviously there’s a lot of questions about whether the economic recovery is sustainable, but stocks tend to react before the fundamentals do,” said Jeffrey Coons, who helps oversee $21 billion as co-director of research at Manning & Napier Advisors Inc. in Fairport, New York. “We haven’t yet begun to see investors shift more assets into equities, so we think stocks have more room to appreciate.”
The S&P 500 has advanced five straight months and in five of the past six weeks following better-than-forecast corporate profits and signs of an improving economy. More than 72 percent of its companies beat the average analyst estimate for second- quarter earnings, the most since Bloomberg began tracking the data in 1993. The Conference Board’s index of leading economic indicators has risen every month since April. With today’s gain, the S&P 500 has risen 53 percent from a 12-year low in March.
Europe, Asia Shares
The Dow Jones Stoxx 600 Index of European shares advanced 0.4 percent after earlier falling as much as 0.8 percent. The MSCI Asia Pacific Index slipped 0.3 percent as the Shanghai Composite Index slid for the first time in four days, decreasing 2.6 percent. Wen Jiabao, China’s premier, said yesterday that excess industrial capacity may limit growth and authorities can’t be “blindly” optimistic.
Treasury yields, which move inversely to the price of the securities, declined after the auction. The new two-year notes were sold at a yield of 1.119 percent, higher than the 1.115 percent average estimate of eight bond-trading firms surveyed by Bloomberg News.
Today’s auction will be followed by $39 billion of five- year notes tomorrow and $28 billion of seven-year notes on Aug. 27. The U.S. government is selling the securities to fund the record budget deficit that resulted from measures to prop up the economy. The deficit will widen to $1.5 trillion next year, reflecting a “deeper recession” than previously expected, White House budget chief Peter Orszag said today.
Teen Clothing
Macy’s, the second-biggest U.S. department-store chain, rose 4.2 percent to $15.96. Bed Bath & Beyond, the largest U.S. home-furnishings retailer, climbed 3.9 percent to $36.60. The S&P 500 Consumer Discretionary Index advanced 1.2 percent, the most among 10 industries, following the consumer-confidence report.
Pulte Homes, the biggest U.S. homebuilder, advanced 3.6 percent to $13.07. The four homebuilders in the S&P 500 gained 3.2 percent as a group, and reached the highest level since Oct. 2. The S&P/Case-Shiller home-price index declined 15.4 percent in June from a year earlier, less than the median economist estimate of 16.4 percent. Prices rose from the prior month by the most in four years.
Energy companies in the S&P 500 retreated 1.6 percent, the biggest drop among the 10 industries.
Big Lots Inc. rose 5.7 percent to $25.41. The closeout retailer said second-quarter profit from continuing operations was 35 cents a share, or 15 percent more than the average analyst estimate.
Hamburgers
Burger King Holdings Inc. increased 7.6 percent to $19. The second-largest U.S. hamburger chain said fourth-quarter profit was 43 cents a share, topping the average estimate by 32 percent, as the company expanded overseas.
Harman International Industries Inc. rose the most in the S&P 500, climbing 9.7 percent to $29.72. The maker of audio systems for homes and vehicles was rated “overweight” in new coverage at JPMorgan Chase & Co., which said the company has the potential to cut costs and boost sales.
Most U.S. stocks fell yesterday, led by financial companies, after SunTrust Banks Inc. said lenders face more credit losses and commercial real estate may falter through 2010. The S&P 500’s five-month rebound left it the valued at 18.9 times the trailing 12-month operating profits of its companies last week, the highest ratio since 2004, according to data compiled by Bloomberg.
Ouster From S&P 500
Manitowoc Co. fell 4.9 percent to $6.51. The crane maker was picked to replace CareFusion Corp., which is being spun off from Cardinal Health Inc., in the S&P 500.
Denbury Resources Inc. fell 7 percent to $15.70 for the biggest drop in the S&P 500. The oil and natural-gas producer was cut to “neutral” from “buy” at UBS AG.
U.S. companies with the worst finances are beating the S&P 500 even as their funding deteriorates, a sign their rally may falter should the economic recovery stall, Armstrong Investment Managers said.
The weakest non-financial companies in the S&P 500 surged 90 percent since March 9 through last week. After the S&P 500 sank to a 12-year low five months ago, those with the best finances gained 49 percent, data from Armstrong Investment show. The companies were identified using New York University Professor Edward Altman’s Z-Score method.