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Monday’s trading session witnessed stocks chalking up gains on the back of robust employment reports released last week. Investor sentiment was also boosted by encouraging consumer credit data. Meanwhile, the U.S and the European Union initiated talks regarding a bilateral free trade agreement. In order to safeguard Greece from defaulting on its own debt in August, the International Monetary Fund (IMF) received a 6.8 billion euro lifeline. Europe’s largest economy, Germany witnessed a significant fall in exports and industrial output, sparking fresh fears over the Euro Zone situation. Of the top ten S&P 500 industry groups, utilities stocks gained the most. Technology stocks were the only loser.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.
The Dow Jones Industrial Average (DJI) gained 0.6% to close the day at 15,224.69. The S&P 500 added 0.5% to finish yesterday’s trading session at 1,640.46. The tech-laden Nasdaq Composite Index rose 0.2% to end at 3,484.83. The fear-gauge CBOE Volatility Index (VIX) dropped 0.7% to settle at 14.78. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.08 billion shares, lower than 2013’s average of 6.4 billion shares. Advancing stocks outnumbered the decliners. For the 60% that advanced, 38% declined.
The S&P 500 has now posted gains in four out of the past five trading sessions. It is less than 2% shy of its all-time high attained on May 21. In the second quarter, benchmarks have been volatile following Bernanke’s testimony over ending the $85 billion bond purchase program. This volatility increased following better-than-expected domestic figures and fears that the bond purchase program will be ended by mid-2014. Last week’s positive job numbers came in as a confirmation that the fundamentals of the U.S. economy are strong. However, this also means that the tapering might start as early as September.
On the domestic front, there were no major economic reports due for release yesterday. However, the consumer credit report for the month of May revealed better-than-expected numbers. According to data released by the Federal Reserve System, consumer credit grew 8.3%. Revolving Credit grew by 9.3% while the non-revolving credit grew by 7.9%.
Meanwhile, U.S. and European policymakers met in Washington on Monday in an attempt to ink the Transatlantic Trade and Investment Partnership pact. Bi-lateral trade has already touched $646 billion in 2012. With the execution of this pact, bilateral trade is expected to increase by $100 billion. U.S. President Barack Obama and European policymakers had originally decided to initiate the talks in February. However, allegations against the U.S. for spying on the phone and internet records disrupted talks. In a scenario where the proposed agreement goes through, the deal is expected to account for 50% of global output, 20% of global direct investment and 30% of global trade.
On the international front, Greece received a 6.8 billion euro lifeline from the IMF and the Euro Zone. Greece was on route to default on its debt in August. European policy makes have stressed on implementing tougher reforms in Athens, so that they can avoid another crisis and continue to receive support from the IMF. The financial crisis in Greece in 2010 was the trigger to the present Euro Zone crisis.
Euro Zone’s largest economy, Germany, posted below-than-expected export figures. Exports, which form an integral part of the country’s economy, declined 2.4% compared to estimates of a fall of 0.4%. Germany’s export figures within the Euro Zone, which account for 40% of total exports, dropped 9.6% in May. Exports to countries outside the region fell 1.6%. Slow industrial production added to fears. Industrial output for May dropped 1%. A slowdown in capital goods production and construction is primarily responsible for low industrial production.
Utility stocks emerged as the biggest gainer among the top ten S&P 500 industry groups. The Utilities SPDR (XLU) gained 1.4%. Stocks such as Public Service Enterprise Group Inc. (NYSE:PEG), NRG Energy Inc (NYSE:NRG), Exelon Corporation (NYSE:EXC), Duke Energy Corp (NYSE:DUK) and Wisconsin Energy Corporation (NYSE:WEC) gained 1.9%, 4.2%, 2.4%, 0.7% and 1.4%, respectively.
Technology stocks were the only losers. The Technology SPDR (XLK) dropped 0.1%. Shares such as Apple Inc. (NASDAQ:AAPL), Hewlett-Packard Company (NYSE:HPQ), Intel Corporation (NASDAQ:INTC), Adobe Systems Incorporated (NASDAQ:ADBE) and Yahoo! Inc. (NASDAQ:YHOO) declined 0.6%, 1.6%, 3.6%, 0.8% and 0.6%, respectively.