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The fastest pace of growth in consumer spending in seven months drove the benchmarks higher on Friday. While the Dow & S&P 500 posted their best first-quarterly performance since 1998, the week also witnessed a green finish for the markets.

On Friday, the Dow Jones Industrial Average (DJI) gained 0.5% to close the day at 13,212.04. The Standard & Poor 500 (S&P 500) gained 0.4% and finished Friday’s trading session at 1,408.47. The tech-laden Nasdaq Composite Index declined 0.1% and closed at 3,091.57. The fear-gauge CBOE Volatility Index (VIX) closed at 15.50, up by a mere 0.02. Total volume on the New York Stock Exchange was 3.7 billion shares. Advancing stocks edged out the decliners on the NYSE, as for 56% of the gainers, 41% stocks dropped lower. The remaining 3% stocks were left unchanged.

It was a rare occasion when the Nasdaq underperformed compared to the other benchmarks. On most occasions over the past few weeks, the Nasdaq had emerged as the winner among the three with the technology sector providing enough support. The Nasdaq even outperformed the benchmarks this quarter.

Yesterday, the Commerce Department reported a 0.8% jump in consumer spending, which is the biggest in seven months. Consumer spending is a key indicator of economic health as it accounts for two-thirds of economic activity in the nation. Consensus estimates had projected consumer spending to increase by 0.6% and the higher-than-expected jump occurred despite a modest increase in personal income. Meanwhile, the Bureau of Economic Analysis reported: “Personal income increased $28.2 billion, or 0.2 percent, and disposable personal income (DPI) increased $18.9 billion, or 0.2 percent, in February”.

Separately, Thomson Reuters/University of Michigan's survey stated that consumer sentiment was at its highest levels since February 2011. The Thomson Reuters/University of Michigan's overall consumer sentiment index jumped to 76.2 from 75.3 last month. Meanwhile, the current economic conditions’ index also was its highest point since February 2011, at 86.0 in March. Richard Curtin, survey director, said optimism about income and jobs negated rising gas prices to help drive consumer confidence higher.

These reports sparked off a broader rally and were the primary catalysts behind Friday’s gains. Coming to individual sectors, the energy sector has been in the news lately thanks to fluctuating crude prices. On Friday, the Energy Select Sector SPDR (XLE) increased 0.8% and stocks including Chevron Corporation (NYSE:CVX), BP plc (NYSE:BP), Suncor Energy Inc. (NYSE:SU), Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP), Western Refining, Inc. (NYSE:WNR) gained 0.3%, 1.5%, 0.5%, 0.8%, 0.3% and 1.6%, respectively.

The Dow, S&P 500 and Nasdaq were up 1.0%, 0.8%, and 0.8%, respectively for the week. While the Dow and S&P 500 enjoyed their biggest first-quarter gains since 1998, the tech-laden Nasdaq enjoyed its best-first-quarterly performance since 1991. The Dow, S&P 500 and Nasdaq jumped 8.1%, 12.0% and 18.7%, respectively in the first quarter. Labor and housing reports have been particularly encouraging, and these two key elements of the economy have been largely responsible for such robust performance. Initial claims have declined on most occasions and the drop has often exceeded expectations. Additionally, the fear-gauge index has dropped to significantly low levels. On January 2, 2012, the first trading day of the year, the VIX clocked 23 and currently it is at 15.50. Over the past three months, the VIX has dropped 32.5%, thus reflecting subdued anxiety and fear, eventually partially justifying the strong quarter performance.

 

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