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Better-than-expected manufacturing activity and lower initial claims catapulted benchmarks to a new high on Thursday. Investor optimism was also fueled by the fact that the bond purchase program will not be tapered anytime soon. Meanwhile, the Markit’s Purchasing Manager’s Index (PMI) also showed an improvement in the Eurozone. All the top ten S&P 500 industry groups finished in the green, of which industrials stocks led the pack.
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 0.8% to close the day at 15,628.02. The S&P 500 increased 1.3% to finish yesterday’s trading session at a record high of 1,706.87. The tech-laden Nasdaq Composite Index expanded 1.4% to end at 3,675.74. The fear-gauge CBOE Volatility Index (VIX) declined 3.8% to settle at 12.94. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.89 billion shares, higher than 2013’s average of 6.4 billion shares. Advancing stocks outnumbered the decliners. For 61% of scrips that advanced, 37% declined.
Better-than-expected corporate results and strong economic numbers have been largely responsible for last week’s rally. It was somewhat similar yesterday too as encouraging domestic economic numbers drove the S&P 500 beyond the 1,700 mark for the first time and Nasdaq hovers at a 13-year high. Also, the fact that bond purchase program is unlikely to end soon boosted investor sentiment.
Looking at the economic numbers, the U.S. Department of Labor reported that number of Americans filing for unemployment benefits dropped to its lowest level in more than five years. The initial claims decreased by 19,000 from prior week to 326,000 in the week ending July 27. It was well below the consensus estimates of 345,000. On a 4-week moving average basis, the figure came in at 341,250, down 4,500 from previous week’s average of 345,750.
According to the data released by the Institute for Supply Management, the economic activity in the manufacturing sector jumped from June’s 50.9% to 55.4% in July. It also outpaced the consensus estimate of 51.9%. The New Orders Index increased to 58.3%, up 6.4 percentage points. Production Index rose by 11.6 percentage points to 65%. However, on the negative side, backlog of orders and exports contracted 1.5 percentage points and 1 percentage point, respectively. The Employment Index expanded 5.7 percentage points to 54.4%. Of the 18 manufacturing industries, 13 of them reported an expansion in July.
The Bloomberg Consumer Comfort Index reached a five-year high as it was recorded its best reading since January 2008. The consumer confidence came in at -27 compared with previous week’s figure of -27.3. Improving job scenario and robust gains from the housing sector has helped consumers to have an improving outlook.
On the international front, recent positive reports indicate that Eurozone may be on the road of recovery. After a series of encouraging reports released this week, the manufacturing activity for the region was also reported to have expanded. The Markit's Eurozone PMI came in at 50.3 for July, compared with 48.8 in June. This reading was also above the estimates of 50.1. This is also the best reading recorded in past two years. Among the Eurozone nations, Ireland recorded growth for second consecutive month, but marginal growth was witnessed in countries such as Germany, Italy and Netherlands. Spain was the only country whose index declined on a month-over-month basis.
The industrial stocks gained the most during yesterday’s trading session. The Industrials SPDR (XLI) gained 1.7%. Stocks such as General Electric Company (NYSE:GE), The Boeing Company (NYSE:BA), United Parcel Service, Inc. (NYSE:UPS), Danaher Corporation (NYSE:DHR) and Precision Castparts Corp. (NYSE:PCP) gained 1.0%, 1.5%, 1.4%, 0.5% and 1.3%, respectively.