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Fears over Federal Reserve slowing down the bond purchase program amidst slow economic growth pushed the benchmarks in the negative territory. A string of domestic reports released yesterday showed signs of modest economic growth. Meanwhile, a couple of reports released yesterday indicate a marginal improvement in the European economy. All the top ten S&P 500 industry groups suffered losses among which materials stocks suffered the most.
The Dow Jones Industrial Average (DJI) lost 1.4% to close the day at 14,960.59. The S&P 500 decreased 0.6% to finish yesterday’s trading session at 1,608.90. The tech-laden Nasdaq Composite Index slipped 1.3% to end at 3,401.48. The fear-gauge CBOE Volatility Index (VIX) gained 7.6% to settle at 17.50. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7 billion shares, well above 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 79% that declined, 19% advanced.
Benchmarks tumbled over 1% during yesterday’s trading session with the Dow Jones closing below 15,000. The S&P 500 is near 1,600 and might go below it if the current trend continues. This benchmark has declined about 3.6% since the day Fed Chairman Ben Bernanke spoke about tapering or slowing the bond purchase program, if the economy gathers enough steam. For some time now, Fed officials have been commenting on whether or not the program should be continued. Concerns over the Fed’s actions on the bond purchase program have hindered investors from taking further risk in the markets.
Fed’s Beige Book provides an insight of the 12 regions collectively. Overall, the numbers have been mixed this time around. However, a housing recovery is being observed in most of the regions. Few regions have started feeling the sequestration affect and have reported weak business activity and cancellation of orders. As per the report, the Fed will not change its policies as of now. However, Bernanke has made it clear that the Fed will start tapering the bond purchase program within “the next few meetings”. The employment situation will be evaluated before any steps are taken.
Meanwhile, employment figures released by Automatic Data Processing (NASDAQ:ADP) showed an increase in employment figures. About 135,000 were added in the U.S. nonfarm private sector among which 58,000, 39,000 and 39,000 were added in small, medium and large businesses, respectively. However, these figures came in below estimates of 157,000.
According to the Institute for Supply Management, Non-Manufacturing ISM index came in at 53.7%, marginally higher than the consensus estimate of 53.6%. Among the Non-Manufacturing components, the business activity index came in at 56.5%, compared to 55% registered in April. New orders grew 56% from previous month’s figure of 54.5% while the employment index declined to 50.1%. Of the total 13 non-manufacturing industries within the index, 5 reported a contraction.
According to the U.S. Department of Commerce, new orders for manufactured goods in April have increased 1%. Shipments declined for the second consecutive month at 0.7%. Unfilled orders increased marginally by 0.3% while inventories increased 0.2%.
On the international front, Markit's Euro zone Composite PMI index improved to 47.7 from April’s figure of 46.9. Although the numbers were seen an improvement, it is still below the 50, indicating a contraction. The UK services PMI increased to 54.9 from April’s figure of 52.9 indicating a gradual growth in the service industry. Additionally, retail sales in the Euro Zone declined by 0.5%, well below estimates of a decline of 0.1% deepening the recession further.
Almost all the S&P 500 industry groups suffered losses over 1%. Materials stocks were the worst hit. Stocks such as Monsanto Company (NYSE:MON), E I Du Pont De Nemours And Co. (NYSE:DD), the Dow Chemical Company (NYSE:DOW), FMC Corp (NYSE:FMC) and Praxair, Inc. (NYSE:PX) lost 3.1%, 2.1%, 2.8%, 1.6% and 0.9%, respectively.