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Markets looked beyond the disappointing economic data, as a strong bond auction in Europe and a drop in oil prices reversed the benchmarks’ movement and guided them higher on Thursday. Investors were also discouraged by a lower income forecast from Chevron.
The Dow Jones Industrial Average (DJI) gained 0.2% to settle at 12,471.02. The Standard & Poor 500 (S&P 500) posted gains of 0.2% and closed yesterday’s trading session at 1,295.50. The Nasdaq Composite Index was up to 2,724.70, adding 0.5%. The fear-gauge CBOE Volatility Index (VIX) shed 2.8% to settle at 20.47. Total volumes on the New York Stock Exchange were 4.03 billion shares. On the NYSE, for 60% of the stocks that advanced, around 37% stocks moved down. The remaining 3% of the stocks were left unchanged.
The day had started on a gloomy note with the benchmarks trading on the lower side. Dismal economic reports, including a rise in initial claims, bogged down the sentiment. However, benchmarks reversed gears during the closing hours, continuing the markets’ tryst with five-month high levels. For the second time this week, the Dow registered its highest closing level since July. The S&P 500 continued its winning streak into the fourth trading day, and Nasdaq enjoyed its sixth-consecutive day of gains. This was also the longest stretch of gains that the Nasdaq recorded since July last year.
What dragged the markets lower in the initial hours were initial claims numbers, increasing more than expected and retail sales which rose at the slowest rate in seven months. The Commerce Department also reported a 0.3% rise in business inventories in November.
Initial Claims numbers, a key bellwether for the economy, dampened sentiment after the U.S. Department of Labor reported a weekly increase of 24,000 in the advance figure for seasonally adjusted initial claims for the week ending January 7, 2012. This figure of 399,000 was also way ahead of the consensus for the current period that estimated initial claims to be 376, 000.
Retail sales data added to the gloom with the U.S. Census Bureau reporting a mere 0.1% rise in advance estimates of U.S. retail and food services sales for December. Retail sales numbers, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, came in at $400.6 billion. Consensus estimates had hoped for a 0.3% rise. This was also the slowest rate of increase in seven months.
However, the retail stocks were mostly in the green zone and the SPDR S&P Retail ETF (XRT) fund gained 0.1%. Among the stocks, Target Corporation (NYSE:TGT), PriceSmart, Inc. (NASDAQ:PSMT), Wal-Mart Stores, Inc. (NYSE:WMT) and Family Dollar Stores, Inc. (NYSE:FDO) gained 1.6%, 3.0%, 0.2% and 0.3%, respectively.
Separately, the U.S. Department of Commerce reported a 0.3% rise in manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, to $1,550.1 billion, for November 2011. According to the report: “The total business inventories/sales ratio based on seasonally adjusted data at the end of November was 1.27. The November 2010 ratio was 1.28”.
Economic data has been mostly positive since late-December. Following a slew of encouraging domestic reports, S&P 500 was able to hold on to gains for 2011 while the Dow enlarged its winning percentage. Starting this year also the economic data has been good, and has helped benchmarks register gains for the first week of 2012. Yesterday’s dismal performance was a departure from the slew of reports which has boosted sentiment. However, investors chose to discount yesterday’s reports at a later stage of the day, with cross-Atlantic news offering hope and oil prices dropping below $100 for the first time this year.
As for the bond auction on the European front, Spain and Italy, both troubled nations, lifted the mood after successful government debt auctions. Spain sold double the amount of bonds than it had expected. Bonds worth $12.7 billion or 10 billion euros of three different types were sold, double the target of raising 5 billion euros. The three bonds included, 4.3 billion euros worth new three-year bonds, 2.5 billion euros worth bonds maturing April 30, 2016, and 3.2 billion euros of bonds maturing October 31, 2016. Meanwhile bond yields also declined. Meanwhile, the Italian 12-month bill yield dropped to its lowest level since June 2011. Borrowing costs slumped to 2.7%.
Amidst the corporate earnings season, investors were disappointed after oil-major Chevron Corporation (NYSE:CVX) announced that it expects earnings to drop “significantly” from the prior quarter. This dragged the stock down by 2.6%. Separately, Infosys Limited (NASDAQ:INFY) provided a dismal growth outlook and the stock slumped 8.8%.
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