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Weaker-than-expected GDP numbers eased investor concerns that the Federal Reserve would decrease monetary stimulus in the near future. Benchmarks rallied for the second consecutive day. Last week, Federal Reserve Chairman Ben Bernanke hinted that monetary stimulus would be decreased by the end of the year if economic data continued to be encouraging. Investors were disappointed by his comments and markets fell sharply. All ten sectors of the S&P 500 industry groups finished in the green with health care leading the pack.
For a look at the issues facing today's markets, read our Ahead of Wall Street for June 27 article.
The Dow Jones Industrial Average (DJI) gained 1.0% to close the day at 14,910.14. The S&P 500 added 1.0% to finish yesterday’s trading session at 1,603.26. The tech-laden Nasdaq Composite Index rose 0.9% to end at 3,376.22. The fear-gauge CBOE Volatility Index (VIX) declined 6.8% to settle at 17.21. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.48 billion shares, marginally higher than 2013’s average of 6.36 billion shares. Advancing stocks outnumbered the decliners. For the 73% that advanced, only 25% declined.
Benchmarks registered first two consecutive days of gains after losses last week following Ben Bernanke’s discouraging comments about the bond buying program. The S&P logged its best two day gain in three weeks. On Tuesday, encouraging domestic reports drove the major indices into positive territory. But yesterday tepid gross domestic product numbers reduced investor concerns about the future of the bond buying program. The easy monetary policy of the central bank is the primary reason for lifting the benchmarks higher this year. Analysts now think that discouraging GDP numbers may change the Federal Reserve’s decisions about the future of such stimulus.
The U.S. Department of Commerce released the final numbers for first quarter GDP. According to the report, the U.S economy expanded at annual rate of 1.8% in the first quarter of 2013. This came in well below the consensus estimate of 2.3%. In the fourth quarter, real GDP increased 0.4%. The increase in real GDP in the first quarter was primarily boosted by positive contributions from personal consumption expenditures (PCE), private inventory investment, and residential fixed investment. These positive contributions were somewhat offset by negative contributions federal government spending, state and local government spending, and exports.
The GDP report revealed that real personal consumption expenditures gained 2.6% in the first quarter. Whereas real nonresidential fixed investment and real residential fixed investment increased 0.4% and 14.0% respectively. On the other hand, real federal government consumption expenditures and gross investment plunged 8.7% in the first quarter in comparison with a decline of 14.8% in the fourth quarter.
On the earnings front, Monsanto Company (NYSE:MON), a major seed company posted third quarter results. The company’s profit came in above the Street’s estimates. But revenues came in below expectations. The company’s shares declined 0.6% after the announcement of quarterly results. Monsanto Chairman and CEO Hugh Grant said: “This is a year where the strength of our global portfolio has really been highlighted, and with the continued strength of our larger, more global business, we're on track to deliver more than 20 percent ongoing earnings growth in fiscal year 2013 and in a very strong position to build on that success with continued growth next year.”
The health care sector was the biggest gainer among the S&P 500 industry groups. The Health Care SPDR (XLV) gained 1.4%. Stocks such as Johnson & Johnson (NYSE:JNJ), Merck & Co., Inc. (NYSE:MRK), Eli Lilly & Co. (NYSE:LLY), Bristol Myers Squibb Co. (NYSE:BMY) and GlaxoSmithKline plc (NYSE:GSK) added 1.9%, 1.0%, 1.2%, 2.9% and 1.3%, respectively.