Benchmarks ended a three day gaining streak on Friday as fears of the Federal Reserve scaling back the bond buying program reemerged. Discouraging Chicago PMI index and Mich-Sentiment numbers added to investors’ woes. Meanwhile, Standard & Poor (S&P) downgraded Cyprus to SD (Selective Default) status from CCC. Of the top ten S&P 500 industry groups, consumer discretionary stocks gained the most. Health care stocks suffered maximum losses.
For a look at the issues facing today's markets, read our Ahead of Wall Street for July 1 article.
The Dow Jones Industrial Average (DJI) lost 0.8% to close the day at 14,909.60. The S&P 500 decreased 0.4% to finish yesterday’s trading session at 1,606.28. The tech-laden Nasdaq Composite Index gained 1.38 points to end at 3,403.25. The fear-gauge CBOE Volatility Index (VIX) remained unchanged at 16.86. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 10 billion shares, well above 2013’s average of 6.36 billion shares. Advancing stocks outnumbered the decliners. For 50% that advanced, 47% declined.
For the first time in the last four years, the second quarter has ended with gains for the indices. The month of June was mostly dominated by volatility. In 15 of the 20 trading days during the period, the Dow oscillated in the range of 100 points. Volatility was kicked off following Ben Bernanke’s testimony on May 22 and gathered more vigor after the Fed meeting held between June 16-18. The central bank had decided to taper its bond purchase program by the end of this year and completely end it by mid-2014. These developments severely affected investor sentiment.
Last week, the benchmarks made up for some losses. Some Fed officials put the market at ease by saying that the scaling back bond purchases is possible only if the market continues to post positive economic numbers. Even after witnessing a volatile month, major indices are up in the range of 12% and 14% for 2013. However when considering the month of June, the Dow Jones declined 1.4% while the S&P 500 and the Nasdaq dropped 1.5% each.
On the domestic front, the University of Michigan and Thomson Reuters consumer-sentiment index came in at 84.1. The figure is higher than the consensus estimate of 82.9 but marginally lower than the 84.5 recorded in May. The Chicago PMI came in at 51.6, well below the consensus estimate of 55.4 and the 58.7 recorded in May. Five business activities make up the barometer. Out of the five, only one, the employment indicator index came in positive. The decrease in the barometer is attributable to a huge drop in order backlogs.
On the international front, Standard & Poor downgraded Cyprus to SD (selective default) status from CCC. The ratings agency defines CCC as currently vulnerable and dependent on favorable economic conditions to meet its commitments. This decision was taken after Nicosia, on Thursday, introduced a debt swap of 1 billion euros worth of government bonds in exchange for long-term debt. This step was necessary to meet the conditions of its 10 billion euro bailout program. Cyprus was on the verge of a financial meltdown but managed to avert the situation thanks to the International Monetary Fund and the European Union who provided it with aid worth 10 billion euros. Apart from S&P, Fitch also lowered its rating for the country to RD (Restricted Default) from CCC.
Among the top ten S&P 500 industry groups consumer discretionary stocks emerged as the biggest gainer. The Consumer Discretionary SPDR (XLY) gained 0.4%. Stock such as Comcast Corporation (NASDAQ:CMCSA), News Corp (NASDAQ:FOXAV), Priceline.com Inc (NASDAQ:PCLN), Coach, Inc. (NYSE:COH) and The Home Depot, Inc. (NYSE:HD) gained 0.5%, 0.4%, 0.5%, 1.3% and 1.6%, respectively.
The Health Care SPDR (XLV) lost 0.8%. Stocks such as Johnson & Johnson (NYSE:JNJ), Pfizer Inc. (NYSE:PFE), Merck & Co., Inc. (NYSE:MRK), Amgen, Inc. (NASDAQ:AMGN) and UnitedHealth Group Inc. (NYSE:UNH) lost 1.0%, 0.6%, 1.8%, 0.3% and 0.9%, respectively.