Benchmarks entered negative territory following fears that the bond purchase program will be rolled back next month. Weaker than expected results from a major retail company added to investors’ woes. Meanwhile, the Euro Zone emerged from a long recession after Germany and France posted better than expected Gross Domestic Product (GDP) numbers. All the S&P 500 industry groups ended in the red. Consumer Discretionary stocks suffered maximum losses.
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) lost 0.7% to close the day at 15,337.66. The S&P 500 dropped 0.5% to finish yesterday’s trading session at 1,685.39. The tech-laden Nasdaq Composite Index slipped 0.5% to end at 3,669.27. The fear-gauge CBOE Volatility Index (VIX) increased 5.9% to settle at 13.04. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 5.4 billion shares, well below 2013’s average of 6.36 billion shares. Declining stocks outnumbered the advancers. For the 63% that declined, 34% advanced.
The $85 billion monthly bond purchase program has pushed benchmarks to multiple highs in 2013. Since last month, various Federal Reserve officials have been commenting on the fate of the bond purchase program. However, no final decision has been taken yet. Yesterday, all the benchmarks dropped by more than 0.5% amidst speculation that the bond purchase program will be ended by next month. In the last hour of yesterday’s trading session, benchmarks pared some losses. Benchmarks came off yesterday’s lows after the president of St. Louis Federal Reserve, James Bullard, said the Central Bank should wait for further improvement in economic indicators before ending the program. The S&P 500 index has dropped 0.4% this week, but has increased 18% for the year.
On the home front, according to data released by the U.S. Department of Labor, The Produce Price Index for July remained unchanged for July, compared to the consensus estimate of an increase of 0.3%. Among other items, prices of finished goods increased 0.8% while price of crude goods rose 1.2%.
On the international front, Euro Zone has finally emerged from recession on the back of better than expected GDP growth of Germany and France. GDP of the Euro Zone region came in at 0.3% for the second quarter of 2013. The region has suffered from a debt crisis for more than three years. Germany’s GDP grew at 0.7% while GDP of France increased unexpectedly by 0.5%. GDP growth in France is mainly attributable to an increase in industrial output and consumer spending. Apart from these two countries, significant growth was also witnessed in Portugal. Portugal’s GDP increased at 1.1%, primarily due to high exports.
Shares of a major retailer Macy's, Inc. (NYSE:M) dropped 4.5% after it reported results below the Street’s estimates. Net income of the company came in at $281 million or $0.72 a share, marginally higher than last year’s net income of $279 million or $0.67 a share. Net sales of the company came in below estimates at $6.07 billion, down from last year’s sales figure of $6.12 billion and the Street’s estimates of $6.26 billion. The company also lowered its yearly guidance of earnings per share to $3.80 and $3.90 per share.
Consumer discretionary stocks were the biggest losers among the top ten S&P 500 industry groups. The Consumer Discretionary SPDR (XLY) dropped 1.1%. Stocks such as Verizon Communications Inc. (NYSE:VZ), CBS Corporation (NYSE:CBS), Time Warner Inc (NYSE:TWX), Comcast Corporation (NASDAQ:CMCSA) and Time Warner Cable Inc (NYSE:TWC) dropped 0.5%, 1.2%, 1.2%, 2.2% and 0.9%, respectively.