GLOBAL stocks last week powered to their best weekly rally in nearly two years, sending two of the biggest equity benchmarks to the brink of records, on speculation that the US Federal Reserve will leave interest rates at zero past mid-year while European policymakers press stimulus.
The MSCI All-Country World Index surged 3.2 per cent for the five days, pushing the Nasdaq Composite Index to within seven points of wiping out all its losses since the Internet bubble. The Stoxx Europe 600 Index soared 1.9 per cent to close 0.4 per cent from its March 2000 high.
Global equities added more than US$1.5 trillion last week as the Fed acknowledged that economic growth has moderated, indicating it is in no rush to raise interest rates. Equities also benefited as pressure eased from a surging dollar and plunging oil. A gauge of the US currency had the steepest weekly slide in three years while crude rebounded for its first gain in five weeks.
"The animal spirit is starting to heat up," Jim O'Donnell, who oversees about US$6 billion as chief investment officer at Forward Management LLC in San Francisco, said in a phone interview. "You've got the combination of three very large, meaningful central banks easing, that's lighting up the fire under those equity markets."
Other benchmark indexes also gained last week. The Standard & Poor's 500 Index rose 2.7 per cent to 2,108.10 in the five days, 0.4 per cent away from a record. In London, the FTSE 100 Index hit a fresh record, climbing above 7,000 for the first time. The Russell 2000 Index gained 2.8 per cent to an all-time high.
The Nasdaq Composite jumped 3.2 per cent to 5,026.42, approaching an all-time high of 5,048.62 reached in March 2000. The gauge of predominantly technology stocks has rebounded 3.6 per cent since March 11. It crossed 5,000 earlier this month before losing 3.2 per cent in nine days.
The index was bolstered by a rally in healthcare stocks. The Nasdaq Biotechnology Index jumped 6.2 per cent for its biggest weekly gain since October, closing at an all-time high. Regeneron Pharmaceuticals Inc soared 14 per cent, while Amgen Inc jumped 10 per cent and Biogen Idec Inc increased 15 per cent to a record.
The Nasdaq Composite approached an all-time high the same week that its biggest member, Apple Inc, entered a much older gauge, the Dow Jones Industrial Average. At 44, the Nasdaq has been around less than half as long as the Dow, and has spent about one-third of its life trying to claw back from the dotcom crash.
As the Nasdaq has closed-in on its record over the last few years, gains have been much more spread out than they were during the 1990s Internet bubble. Since the start of 2012, the Nasdaq 100 Index, a basket of the gauge's biggest stocks, is up 96 per cent, compared with 93 per cent for the broader measure.
Over the same period at the end of the Internet bubble, the Nasdaq 100 climbed 450 per cent - 208 percentage points more than the Nasdaq Composite. That happened because gains were concentrated in the biggest companies, with Cisco Systems Inc climbing 844 per cent over the interval and Microsoft Corp rising 383 per cent. Since 2011, the biggest gainer in the Nasdaq 100 is Regeneron, at 782 per cent.
The current rally has also hewn much closer to the advance in broader benchmarks. Since the start of 2012, the Nasdaq Composite has risen at a 24.3 per cent annualised rate, compared with 19.9 per cent over that stretch for the S&P 500. Over the same interval of days ending on March 10, 2000, the Nasdaq rose at a yearly rate of 53.3 per cent, compared with 23.1 per cent in the S&P 500.
The S&P 500 seesawed between gains and losses every day last week. The gauge has gone 23 consecutive sessions without back-to-back advances, the longest since a 23-day stretch in June 2010. In 2014, gains came much easier as the measure never fell four days in a row.
The S&P 500 added 1.2 per cent last Wednesday after the Fed said higher interest rates in April are unlikely and it won't tighten until it is "reasonably confident" inflation will return to its target and the labour market improves further.
The US central bank also dropped an assurance it will be "patient" in raising interest rates and lowered its assessment of the economy, saying growth has "moderated somewhat". Data during the week reinforced the Fed's view: manufacturing output nationally and in the New York area was below forecast and beginning home construction plunged in February.
"Clearly the impetus this week started with Janet Yellen," Bill Schultz, who oversees US$1.2 billion as chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, said by phone. "With that came a weaker dollar and a turnaround in oil as well, so these things that had worked against the market so much up until this week are correcting or stabilising."
The Chicago Board Options Exchange Volatility Index dropped 19 per cent to 13.02, the lowest since Dec 5. The gauge of S&P 500 options prices climbed 20 per cent in the first two weeks of March.
As the Fed has wound down its quantitative easing programme and signalled a rate increase, the European Central Bank and Bank of Japan are expanding their stimulus programmes.
The euro has fallen against the US currency for eight straight months as monetary policies worldwide have diverged. The Bloomberg Dollar Spot Index sank 2.2 per cent last week, the most since October 2011.
The MSCI gauge of emerging-market stocks jumped 3.2 per cent, while Asia-Pacific equities added 2.5 per cent. The Nikkei 225 rallied 1.6 per cent to the highest since 2000 and Japan's Topix gained 1.3 per cent to touch a seven-year high.
Nine out of 10 main industries in the S&P 500 advanced as healthcare and utilities added more than 4.2 per cent.
Energy stocks rose 3.4 per cent in their best week since Feb 6 as crude prices advanced 2 per cent. Chevron Corp surged 5.3 per cent and Transocean Ltd jumped 10 per cent.
Technology shares added 2.9 per cent. Facebook Inc climbed 7.4 per cent in five consecutive days of gains, while Salesforce.com Inc increased 4.8 per cent and Yahoo! Inc climbed 5.1 per cent.
Apple increased 1.9 per cent. The company joined the Dow last Thursday with the fifth-highest weighting in the index at 4.6 per cent. The company accounts for 15 per cent of the Nasdaq 100 Index and 3.9 per cent of the S&P 500.
Even with Apple in the average, Goldman Sachs Group Inc is now the biggest weighting in the 118-year-old gauge after a stock split last week by Visa Inc. Goldman Sachs rose 2 per cent.
"It's nice," Forward Management's Mr O'Donnell said of the equity market's advance towards records. "It makes everybody feel good. A lot of times, you get a spring-time rally, snow melts, flowers start blooming and the animal spirit just makes you want to buy stocks." BLOOMBERG