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Benchmarks ended in the red as investors booked profits and transferred investments from stocks into bonds. Meanwhile, a bunch of domestic results were reported on Friday, providing mixed signals to investors. The official Purchase Manager’s Index (PMI) of the world’s second-largest economy, China, came in above market expectations while high unemployment and low inflation continued to haunt the Euro Zone. All the top ten S&P 500 industry groups suffered losses among which health care stocks suffered the most.
The Dow Jones Industrial Average (DJI) lost 1.4% to close the day at 15,115.17. The S&P 500 decreased 1.4% to finish Friday’s trading session at 1,630.74. The tech-laden Nasdaq Composite Index slipped 1.4% to end at 3,455.91. The fear-gauge CBOE Volatility Index (VIX) gained 12.2% to settle at 16.30. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7.64 billion shares, well above 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 82% that declined, 16% advanced.
This is the first instance since November 2012 when major indices have posted losses for the second week in a row. However, the Dow Jones, the S&P 500 and the Nasdaq have gained 1.9%, 2.1% and 3.8%, respectively for the month of May. Last week, benchmarks hit a bumpy road following indications that the Federal Reserve’s bond-purchasing program might slowdown or end soon. The bond-purchasing program has been the primary driver of the stock market rally since the start of 2013. A series of domestic economic reports were released on Friday. While the Chicago PMI and the Mich Sentiment improved, personal spending and PCE inflation came in shy of estimates.
According to Deutsche Börse AG and the Institute for Supply Management – Chicago, Inc., the Chicago PMI came in at 58.7 well above the consensus estimate of 50.2. Among the components of business activity, supplier deliveries, employment and order backlogs improved while inventories were at its lowest level since three and a half years. Production was at its strongest among all components. Meanwhile, the Thomson Reuters / University of Michigan Surveys of Consumers index came in at 84.5 compared to the consensus estimate of 83.7.
On the negative side, according to the U.S. Department of Commerce, personal income declined marginally, by less than 0.1% for the month of April. Disposable personal income (DPI) decreased 0.1%. The personal consumption expenditure (PCE) decreased 0.2%. These figures have increased for the month of March. Personal income, DPI and PCE increased 0.3%, 0.2% and 0.1%, respectively, based on revised estimates.
On the international front, according to data released by National Bureau of Statistics and China Federation of Logistics and Purchasing, the official PMI for China improved for the month of May. The PMI came in at 50.8 compared to April’s figure of 50.6. New orders increased marginally at 51.8 from previous month’s figure of 51.7 while new orders increased to 49.4 from 48.6 recorded in the previous month.
This figure came as a ray of hope, suggesting that the Chinese economy may be stabilizing. Recently, the HSBC flash PMI index came in at 49.6, indicating a shrink in the manufacturing sector. Additionally, the International Monetary Fund had also lowered its growth projection for China from 8.0% to 7.75%, last week.
According to the European Union statistics office, Eurostat, the unemployment rate of the region in April, has touched 12.2%. Meanwhile, the inflation rate is well below the expected figure of 2%, at 1.4%. However, the inflation rate is better than April’s figure of 1.2%. The worst hit economies where unemployment is peaking are Italy and France. The unemployment rate in Italy has touched 40% and is at a record high in France. Of the 5.6 million people unemployed under the age of 25 in the European Union, 3.6 million are from the Euro Zone area.
The health care sector was the biggest loser among the top ten S&P 500 industry groups. The Health Care SPDR (XLV) lost 2.1%. Stocks such as Pfizer Inc. (NYSE:PFE), Amgen, Inc. (NASDAQ:AMGN), Mylan Inc. (NASDAQ:MYL), Merck & Co., Inc. (NYSE:MRK) and Gilead Sciences, Inc. (NASDAQ:GILD) lost 3.6%, 4.5%, 1.6%, 0.8% and 2.4%, respectively.