GDP data showed a slight increase from the initial estimate on Wednesday, which coupled with strong housing data helped the markets finish in the green. After two back-to-back days of losses, the blue-chip index returned to the positive zone. However, the gains for all the benchmarks were paltry, primarily due to the cautious attitude ahead of Federal Reserve Chairman Ben Bernanke’s key speech at the Jackson Hole on Friday. Volumes remained at their lowest level for the year.
The Dow Jones Industrial Average (DJI) edged up 4.49 points or 0.03% to end the day at 13,107.48. The Standard & Poor 500 (S&P 500) inched up 1.19 points or 0.08% to finish yesterday’s trading session at 1,410.49. The tech-laden Nasdaq Composite index added 0.1% and closed at 3,081.19. The fear-gauge CBOE Volatility Index (VIX) gained 3.5% to settle at 17.06. Consolidated volumes on the New York Stock Exchange, Nasdaq and the American Stock Exchange were roughly 4.41 billion shares, lower than the year-on-year average of roughly 6.6 billion shares. Advancing stocks outpaced the decliners on the NYSE; as for 58% stocks that gained, 38% stocks closed lower.
The economic readings dominated the headlines for the day and they were largely on the positive side. The Gross Domestic Product (GDP), which provides the most comprehensive reading of the nation's health, advanced at a slightly higher pace than the initial estimate. According to the second estimate by the Bureau of Economic Analysis, real GDP posted an annual increase of 1.7% in the second quarter of 2012, up from the initial estimate of 1.5%. The 1.7% increase was also in line with consensus estimates. The advance in GDP figures was primarily due to improved consumer spending and exports.
Also helping to improve the mood was encouraging pending home sales data from the National Association of Realtors. According to the report, the Pending Home Sales Index increase by 2.4%, from 99.3 in June to 101.7 in July. The increase meant that the index reached its best level since April 2010. Moreover, the 2.4% increase outdid the consensus estimate of a 1.5% rise.
The encouraging housing report came just a day after strength in Standard & Poor's/Case-Shiller home price data. The report noted that the S&P/Case-Shiller 20-city composite index registered a yearly gain of 0.5% in June 2012. Thus, with back-to-back positive housing reports, housing stocks enjoyed another day of gains. The SPDR S&P Homebuilders (XHB) was up 0.6% and stocks including The Ryland Group, Inc. (NYSE:RYL), M.D.C. Holdings, Inc. (NYSE:MDC), Hovnanian Enterprises, Inc. (NYSE:HOV), KB Home (NYSE:KBH), PulteGroup, Inc. (NYSE:PHM) and D.R. Horton, Inc. (NYSE:DHI) jumped 0.7%, 2.8%, 1.5%, 1.1%, 0.9% and 0.7%, respectively.
Separately, the Federal Reserve’s Beige Book noted an improvement in overall economic activity, while manufacturing activity expanded at a slower pace. According to the report: “Reports from most of the twelve Federal Reserve Districts indicated that overall economic activity continued to expand at a modest to moderate pace in June and early July… Retail sales increased slightly in all reporting Districts except Boston and Cleveland, where sales were categorized as flat, and New York, where sales softened”. Discussing the manufacturing activity, the report noted “Manufacturing activity continued to expand slowly in most Districts, and Cleveland, Atlanta, Chicago, and Kansas City cited slight increases in production levels. However, several Districts reported a deceleration in new orders, and the Philadelphia and Richmond Districts reported declines in shipments and orders”.
Thus, overall the mood remained positive yesterday. However, the gains were limited as investors are refraining from betting big bucks ahead of Ben Bernanke’s speech on Friday. Investors are eagerly waiting to hear what Ben Bernanke has to say about the economy and measures to boost it. The run up to this speech on Friday has seen decent volatility. Thus, the speech has gained all the more importance and all eyes are fixed on it now.