Markets moved up modestly, boosted by transportation shares on Wednesday, but concerns emanating from economic data and Portugal’s downgrade kept gains in check. Additionally, investors refrained from betting big bucks as they await significant reports this week.
The Dow Jones Industrial Average (DJIA) gained 0.5% to settle at 12,626.02. The Standard & Poor 500 (S&P 500) moved up 0.1% to finish the day at 1,339.22. The Nasdaq Composite Index closed at 2,834.02, after gaining 0.3%. Investors continued to adopt a wait-and-watch attitude as trading volumes remained significantly low. On the New York Stock Exchange (NYSE), AMEX and Nasdaq, consolidated volumes were 5.98 billion, compared to last year's daily average of 8.47 billion shares. On the NYSE, the mood was dominated by the advancers as for every eight stocks that gained, six stocks were on the declining side.
An increase in transportation activity is significant because shipping activity is a good indicator of demand for goods. The Dow Jones Transportation Average (DJT) hit a new high as it surged 1.2% to settle at 5,566.07. Freight transportation and logistics services company Con-way Inc. (NYSE:CNW) provided further weight to evidence from the transportation index as it stated that an improving economy has enabled it to restore certain employee benefits. Among other gainers were Arkansas Best Corporation (NASDAQ:ABFS), Roadrunner Transportation Systems, Inc. (NYSE:RRTS), Universal Truckload Services Inc. (NASDAQ:UACL), FedEx Corporation (NYSE:FDX) and United Parcel Service, Inc. (NYSE:UPS) and they surged 10.5%, 3.0%, 5.3%, 1.3% and 1.0%, respectively.
However, disappointing economic data limited whatever gains the markets could garner on Wednesday. The Institute for Supply Management reported that activity in the US non-manufacturing sector had increased slower than expected last month. The Non-manufacturing Index (NMI) dipped 1.3% from May to a reading of 53.3% in June, reflecting continued growth but at a slower pace. The report also stated: “The Non-Manufacturing Business Activity Index decreased 0.2 percentage point to 53.4 percent, reflecting growth for the 23rd consecutive month, but at a slightly slower rate than in May. The New Orders Index decreased by 3.2 percentage points to 53.6 percent. The index was created in 1997 and is based on a survey of about 370 purchasing executives in industries of finance, insurance, real estate, communications, and utilities. Readings above 50% indicate expansion for the non-manufacturing components of the economy.
News from the international front also kept gains in check as concerns about Portugal’s debt rating continued to keep worry investors and a rate hike from China fueled further concerns. In its effort to combat inflation, the Chinese central bank has increased its deposit and lending rates by 25 basis points. Separately, earlier on Tuesday, Moody's Investors Service had slashed Portugal’s debt credit rating by four levels or two notches. The ratings firm downgraded the nation’s rating from Baa1 to Baa2 and feels Portugal needs a second bailout package to achieve its debt reduction goals. Moody’s stated in its report: "A further downgrade could be triggered by a significant slippage in the execution of the government's fiscal consolidation program, a further downward revision of the country's economic growth prospects or an increased risk that further support requires private sector participation".
Bank stocks were among the biggest laggards and the Financial Select Sector SPDR (XLF) dipped 0.5%. Stocks including Bank of America Corporation (NYSE:BAC), The Goldman Sachs Group, Inc. (NYSE:GS), Royal Bank of Scotland Group plc (NYSE:RBS), Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM) and Barclays PLC (NYSE:BCS) slipped 2.4%, 0.5%, 3.6%, 1.8%, 1.2% and 3.4%, respectively.
However, the markets bucked the negative trend to survive the trading day with a cautious attitude. Investors have their eye fixed on economic reports that are most likely to guide the markets’ direction. The employment report from Automatic Data Processing (ADP) is scheduled for release on Thursday, followed by the all important non-farm payrolls report for June slated for Friday.