Benchmarks finished in the green following encouraging domestic data and positive comments from China on its growth rate. The Dow Jones breached previous records, while the S&P is very close to its highest level. Support from the Federal Reserve for continued bond buying was largely responsible for boosting market sentiment. All ten S&P 500 industry groups finished in the green, among which industrials were the biggest gainers.
The Dow Jones Industrial Average (DJI) gained 0.9% to close the day at 14,253.77. The S&P 500 increased 1.0% to finish yesterday’s trading session at 1,539.79. The tech-laden Nasdaq Composite Index rose 1.3% to end at 3,224.13. The fear-gauge CBOE Volatility Index (VIX) dropped almost 3.8% to settle at 13.48. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.5 billion shares, marginally above the daily average of 6.48 billion shares. Advancing stocks outnumbered the declining stocks. For the 72% that advanced, 25% declined.
Yesterday, the Dow finished at 14,253.77, marching past the previous record achieved on October 9, 2007, at 14,164.53. The S&P 500 is just 2% away from its highest level. After the Dow touched its lowest point on March 9, 2009, at 6,547 there have been major economic reforms and stimulus packages which have helped the distressed economy recover from the financial crisis. Recent domestic economic data including improving housing prices, increased spending and auto sales have boosted the economy. Improved corporate earnings in the previous quarter also indicate an improving economy. Even though the Dow has touched its highest level since 2007, the unemployment rate prevailing is 7.9%, compared with 4.7% in 2007.
Encouraging data on the domestic front was largely responsible for improved investor sentiment. According to the Institute for Supply Management, the non-manufacturing sector grew in February for the 38th month in a row. The non-manufacturing index grew 0.8% at 56% in February compared with 55.2% in January. This is higher than the consensus estimate of 55.3%. The non-manufacturing business index increased 0.5% to 56.9 from previous month’s reading of 56.4. The new orders index increased 3.8% to 58.2% and the employment index decreased 0.3% to 57.2 indicating growth in employment for the seventh month in a row.
On the international front, China said that they will focus on maintaining the GDP growth rate at 7.5% and will increase fiscal spending by 10%. 24 of the 31 provinces in the country said that they are aiming for a minimum GDP growth of 10%. These positive developments came after the China State Council decided to introduce new rules to have greater control over the housing prices.
Meanwhile, retail sales data of the 17 European countries (EA17) also reported encouraging figures According to Eurostat, the European Union’s statistics agency, retail sales for the month of January increased 1.2%. In December, retail sales declined by 0.8%. Retail sales in 27 European countries (EU27) increased 0.9% compared with a decline of 0.7% in December. On a year over year basis, the retail sales index dropped 1.3% for 17 European countries and 0.9% in the 27 European countries.
Industrial stocks were the biggest gainers among the top ten S&P 500 groups. The Industrials SPDR (XLI) rose 1.4%. Stocks such as General Electric Company (NYSE:GE), 3M Co (NYSE:MMM), Caterpillar Inc. (NYSE:CAT), Honeywell International Inc. (NYSE:HON) and United Technologies Corporation (NYSE:UTX) increased 1.4%, 1.1%, 0.5%, 1.4%, and 2.1%, respectively.