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Domestic as well as global economic data buoyed investor sentiment on Wednesday. The mood brightened further after Greece moving closer to striking a crucial deal with its private creditors. Markets were thus able to carry forward the positive momentum from January, which saw the benchmarks posting their best January percentage gains in over a decade, and opened February on an upbeat note.
The Dow Jones Industrial Average (DJI) added 0.7% to close the opening day of February at 12,716.46. In fact, the blue-chip index had gained 151 points earlier during the trading session. The Dow is now close to April 2011’s level of 12, 810, which is its highest closing level since 2008. The Standard & Poor 500 (S&P 500) signed off yesterday’s trading session at 1,324.09, after it moved 0.9% higher. The tech-laden Nasdaq Composite Index inched up 1.2% and settled at 2,848.27. Reflecting easing concerns, the fear-gauge CBOE Volatility Index (VIX) dropped 4.6% to settle at 18.55. Consolidated volumes on the New York Stock Exchange (NYSE), Amex and Nasdaq were 7.80 billion, well above the 20-day moving average of 6.97 billion. The advancers were well ahead of the decliners, as for 81% of the stocks that moved up, 17% stocks traded lower. The remaining 2% stocks were left unchanged.
The investors have been a happier lot since late-December 2011, when economic reports started bringing in more cheer, overshadowing a multitude of concerns. Yesterday too, domestic reports did not fail to impress the Street and global data chipped in to lift the domestic benchmarks. Reports showed that manufacturing activity has surged in China, Germany, France and the United Kingdom, all of which are key players in the global financial arena. The China Federation of Logistics and Purchasing reported that the Purchasing Manager’s Index had moved up by 0.2 from December to 50.5 in January. Separately, Germany enjoyed its first expansion in manufacturing activity in four months. European markets moved higher to their highest close in six months following this data, while France and the United Kingdom also experienced expansions in their manufacturing activity.
While manufacturing activity expanded in these regions, the US too was not a step behind in impressing investors on the same count. The Institute for Supply Management reported that economic activity in the manufacturing sector had expanded for the 30th consecutive month in January. The PMI moved up by 1% from December to 54.1% in January. The index came in short of the consensus estimate of 54.5, but touched its highest levels since June 2011.
Meanwhile, the ADP National Employment Report suggested that the private sector had added 170,000 jobs in January. The economy now awaits significant non-farm payroll data from the government, scheduled for release on Friday. Separately, The U.S. Census Bureau of the Department of Commerce reported a 1.5% month-on-month increase in construction spending that moved up to a seasonally adjusted annual rate of $816.4 billion during December 2011. The rate of increase was well ahead of consensus estimates of a 0.6% rise.
The day’s optimism was not only restricted to economic reports, but a positive development with regard to the Greek debt situation also contributed towards the domestic benchmarks’ upward rally and the European markets closed at a six-month high. At a press conference in Athens, Greek finance minister Evangelos Venizelos announced that the deal between the government and the private creditors were just a step away. Evangelos Venizelos said: "We are one step — I would say it is a formality— away from finalizing" the bond swap deal, which will see private creditors swap their bonds with new ones that will have a longer repayment duration and lower interest rate. The new bonds will also be half the value of the current Greek bonds. Highlighting the importance of the deal, the finance minister said: "The next few days will determine what happens over the coming decade".
The financial sector enjoyed robust gains amidst all these developments and the Financial SPDR Select Sector Fund (XLF) was up 1.6%. Among the bellwether stocks, Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS) and Wells Fargo & Company (NYSE:WFC) gained 3.2%, 2.9%, 1.8%, 4.0% and 2.8%, respectively.
Corporate earnings results also came in handy yesterday, particularly for the technology sector as Broadcom Corporation (NASDAQ:BRCM) and Seagate Technology. (NASDAQ:STX) both crushed the Street’s estimates. Though Broadcom Corporation’s revenues were down 6.4% in the fourth quarter, it managed to move ahead of the estimates and its shares jumped 8.1%. Seagate was the big winner of yesterday’s trading session as its share prices soared 20.8%. The company’s earnings per share toppled estimates and it also reported an upsurge in revenues. The Technology SPDR Select Sector Fund (XLK) inched up a percent and other tech shares like Cisco Systems, Inc. (Nasdaq:CSCO), Juniper Networks, Inc. (NYSE:JNPR), Check Point Software Technologi (Nasdaq:CHKP) and Ciena Corporation (Nasdaq:CIEN) gained 0.8%, 3.6%, 2.7% and 2.2%, respectively.
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